«Personal insolvency information for debtors November 2015 July 2010 This publication is designed for people who may be finding their level of debt ...»
Personal insolvency information
for debtors November 2015
This publication is designed for people who may be finding their level of debt unmanageable and are contemplating
bankruptcy or any of the formal options available under the Bankruptcy Act.
All the information contained in this publication and the required forms can also be found on AFSA’s website
All of the formal options to deal with unmanageable debt (eg bankruptcy) outlined in this publication have serious consequences. It is recommended that you investigate all options available to you, including negotiating directly with your creditors, prior to entering any formal arrangement such as bankruptcy.
Privacy: If you choose to enter into a personal insolvency arrangement, you will need to complete forms that require the provision of “personal information” (as defined by the Privacy Act 1988). This information is collected under, and for the purpose of, the Bankruptcy Act 1966 or related legislation.
Contents Your options for dealing with unmanageable debt 2 Informal options 2
- Formal options 2 Formal options to deal with unmanageable debt 3
- Suspension of creditor enforcement by presenting a declaration of intention (DOI) to present a debtor’s petition option 3
- Debt agreement 4
- Personal insolvency agreement 6
- Bankruptcy 8 Essential bankruptcy information 11
- Part A: Assets 11
- Part B: Your employment and income 12
- Part C: Debts and creditors 14
- Part D: Overseas travel
www.afsa.gov.au Supporting better outcomes for consumers, business and the community.
Your options for dealing with unmanageable debt Being unable to manage your debts can be caused by various reasons, some of which may be beyond your control.
For instance, sudden unemployment, ill health or breakdowns in family relationships are often the causes that trigger financial hardship.
It is important to recognise financial difficulty early so that you can address the situation before it becomes unmanageable. If you are having trouble managing your debts there are actions you can consider before turning to the formal arrangements offered by the Bankruptcy Act.
Getting help Financial counsellors help people in financial difficulty, and are available in every state and territory. Their services are free, independent and confidential. You can talk to a financial counsellor from anywhere in Australia by phoning 1800 007 007 (minimum opening hours are 9.30 am – 4.30 pm Monday to Friday). This number will automatically direct your call through to a financial counselling service in the state or territory closest to you.
Contact information for registered trustees and debt agreement administrators is also available on our website (www.afsa.gov.au) or by contacting us on 1300 364 785.
Need help with interpreting?
If you want to talk to AFSA but do not speak English, call the Translating and Interpreting Service on 131 450.
Informal options You should read “Dealing with debt: Your rights and responsibilities”. This is a government publication which gives you information on dealing with debts, debt collectors and disputes. This publication is available through the Australian Securities and Investments Commission (ASIC) www.asic.gov.au or phone 1300 300 630 or the Australian Competition and Consumer Commission (ACCC) www.accc.gov.au or phone 1300 302 502.
One way of dealing with unmanageable debt is to approach your creditors (the people you owe money to). In some circumstances, creditors may give you more time to pay, agree to renegotiate repayments or accept a smaller payment to settle the debt. You can contact your creditors directly or you can ask for help from a financial counselling service, a community legal centre, a registered trustee, a registered debt agreement administrator, a lawyer or an accountant. They will talk to you about your options and may speak to creditors on your behalf, help with budgeting advice or give you advice about other sources of government assistance.
Formal options The Bankruptcy Act provides four formal options to deal with unmanageable debt. The legislation sets out what you and your creditors can and cannot do under each of these arrangements. More detail regarding each formal option can be found in this booklet at “Formal options to deal with unmanageable debt” from page 3.
Note: The consequences of entering into a formal arrangement are serious. All formal arrangements will affect your credit rating. It is your responsibility to read and understand the information contained in this publication before you decide to enter one of these arrangements.
Choosing the right option Every person’s circumstances are different. An option that suits one person may not suit another. In making your decision, it is important to be realistic about your current situation as well as what you expect to happen in the future.
For instance, if you are thinking about asking your creditors for more time to pay your debts, or to pay by instalments, then you should make sure that this is something you will definitely be able to afford. If not, you may want to think about other more formal options.
The following pages provide more detailed information about the formal options that may be available to you. A comparison of the various options is also provided on page 21. If you have any questions regarding any of these options, please call us on 1300 364 785 or visit our website at www.afsa.gov.au.
AFSA does not provide advice about which option is best suited to your particular circumstances. You are encouraged to seek independent advice before making a decision. Refer to the “Getting help” section on this page for how to contact a financial counsellor in your area for help and advice.
Page 2 of 30 Formal options to deal with unmanageable debt Suspension of creditor enforcement by presenting a declaration of intention (DOI) to present a debtor’s petition option If you have unmanageable debt and need time to consider your options, you may apply for temporary protection from enforcement action by your unsecured creditors by lodging a DOI.
This temporary relief allows you to negotiate payment arrangements with creditors or, alternatively, consider a formal insolvency administration (debt agreement, personal insolvency agreement or bankruptcy) that may be suited to your circumstances.
What is a DOI?
A DOI is an option under the Bankruptcy Act that provides temporary relief to allow you up to 21 days to decide whether to proceed with bankruptcy or another option. During the 21-day period, unsecured creditors cannot take any action to recover debts, including recovering money or seizing unsecured assets. In this time you can consider your financial circumstances, negotiate with your creditors and, where possible, make suitable arrangements to avoid entering a formal option under the Bankruptcy Act.
What happens if I lodge a DOI?
A DOI is not recorded on the National Personal Insolvency Index (public electronic register of all personal insolvencies).
Your creditors are notified of the stay on enforcement action and provided with a copy of your financial affairs. You do not automatically become bankrupt after the 21 day stay period, however, if you have not come to a suitable arrangement with your creditors and you do not voluntarily apply to become bankrupt, your creditors can choose to apply to the court to make you bankrupt.
Who can lodge a DOI?
You may lodge a DOI if:
• you have not applied for a DOI in the last 12 months
• you have not signed a controlling trustee authority within the preceding six months (ie proposed a personal insolvency agreement to your creditors)
• you are not currently under a debt agreement, personal insolvency agreement or the subject of a current controlling trustee authority
• a creditor has not already petitioned for you to be made bankrupt
• you have a residential or business connection to Australia (ie you are living in Australia or conduct business in Australia).
What are the effects of a DOI?
Generally, your unsecured creditors cannot continue with any enforcement action for 21 days. Some unsecured creditors are not bound by this stay period and they may continue recovery action (eg child support debts, court imposed fines/ penalties and HELP debts). Secured creditors are also not bound by this stay period (eg if your car or house mortgagee has initiated repossession proceedings, they may continue to do so).
The 21-day period can end earlier if:
• a creditor petitions the court to make you bankrupt and/or the court makes you bankrupt during this period
• you sign a controlling trustee authority (ie propose a personal insolvency agreement) during this period
• you voluntarily apply to become bankrupt during this period.
Fees and charges There is no fee to submit a DOI application.
Further information can be obtained by:
• contacting us on 1300 364 785
• visiting www.afsa.gov.au
• discussing your financial affairs with a financial counsellor.
What is a debt agreement?
A debt agreement is a formal option to help you deal with unmanageable debt. You will be released from your debts when
you complete all payments and obligations under the agreement. A debt agreement may provide for:
• weekly or monthly payments from your income • deferral of payments for an agreed period • the sale of an asset to pay creditors • a lump sum payment to be divided among creditors.
Who can propose a debt agreement?
You can lodge a debt agreement proposal if you:
• are insolvent (this means you are unable to pay your debts as and when they fall due) • have not been bankrupt, had a debt agreement or appointed a controlling trustee under the Bankruptcy Act in the last 10 years • have unsecured debts, assets and after-tax income for the next 12 months all less than set limits. Limits are provided on the Indexed Amounts information in this pack, or can be found on our website www.afsa.gov.au.
What happens when you propose a debt agreement?
• your name and other details appear on the National Personal Insolvency Index (NPII), a public record, for the proposal and any debt agreement • your ability to obtain further credit will be affected. Details of the debt agreement will also appear on a credit reporting organisation’s records for up to five years - or longer in some circumstances • during the voting period creditors cannot take debt recovery action or enforce action against you or your property;
and must suspend deductions by garnishee on your income.
What are the effects of entering a debt agreement?
• all unsecured creditors are bound by the debt agreement and are paid in proportion to their debts • you are released from most unsecured debts when you complete all your obligations and payments • secured creditors may seize and sell any assets (eg a house) which you have offered as security for credit if you are in default • creditors cannot take any action against you or your property to collect their debts • the agreement does not release another person from a debt jointly owed with you.
What is the procedure?
Stage 1: Information You must read and sign the prescribed information page regarding the consequences of bankruptcy, debt agreements and other alternatives. This is available from www.afsa.gov.au or phone 1300 364 785.
Stage 2: Appointing an administrator If, after considering all your options, you decide that a debt agreement is the best option, you must decide if you are going to appoint an administrator. Most administrators are registered debt agreement administrators, but non registered administrators are also available. Contact details for debt agreement administrators can be obtained by contacting AFSA on 1300 364 785.
The services provided by an administrator attract a fee. The administrator can initially help you by providing information about all of your available options, working out a budget and talking to your creditors.
Once you have appointed an administrator, they will determine if you are insolvent and the extent of your unmanageable debt. They will also help you to prepare a debt agreement proposal that takes into account what you can afford to pay creditors and will assist with the completion of the correct forms.
You and/or your administrator will need to complete and lodge three forms with AFSA:
• A debt agreement proposal - this outlines what your proposal is to your creditors.
• An explanatory statement - informs the creditors about your income, expenses, assets and debts, personal circumstances, household expenses and the reasons behind your financial difficulty.
• A statement of affairs - this outlines in detail your personal information and circumstances. The completed form is not sent to creditors and is not a public document.
Page 4 of 30 Stage 3: Proposal is lodged with AFSA The debt agreement proposal must be completed and lodged with AFSA within 14 days of being signed by the debtor.
A certificate signed by the administrator must accompany all debt agreement proposals lodged by an administrator.
The certificate states that the administrator:
• has given you the prescribed information about bankruptcy, debt agreements and other options • believes you can afford to make the payments promised in your debt agreement proposal; and • believes you have properly disclosed your affairs to creditors.
If you are self-administering you do not have to supply a certificate but must provide AFSA with a signed copy of the prescribed information when lodging the proposal.
All of these forms, including the prescribed information, can be found on www.afsa.gov.au or can be provided to you by calling our National Service Centre on 1300 364 785.