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Bankruptcy occurs when a trustee takes over your financial affairs because you are unable to pay your debts.
If you have unmanageable debts you should first seek financial advice to explore ways to repay them. If this does not result in arrangements that satisfy your creditors you may need to consider your options under the Bankruptcy Act 1966
The ultimate option under the Act is to become bankrupt. Consider both the advantages and disadvantages of this move before making your decision.
Bankruptcy is available to individuals and companies.
The law governing bankruptcy applies throughout Australia. Under the Act, bankruptcy cases can be heard by:
How you go bankrupt
You can become bankrupt in one of two ways:
- As an individual you can file for bankruptcy by submitting a debtor's petition to the Official Receiver in Bankruptcy.
- One or more creditors can petition the Federal Court for you to be declared bankrupt.
As an alternative to bankruptcy, creditors sometimes agree to a deed of arrangement. This involves you, the debtor, handing over the management of your affairs to a trustee who works to provide a better return for creditors.This arrangement is also beneficial to the debtor because it avoids the cost, trauma and stigma of bankruptcy.
How long bankruptcy lasts
Bankruptcy usually lasts three years. After this time, the bankruptcy is dissolved, freeing the bankrupt of original debts and allowing a fresh start to be made.
Should you be facing bankruptcy at any time you should consult a solicitor for advice and assistance.
Administration of bankruptcy procedure
The Australian Financial Security Authority (AFSA) is the Federal body responsible for personal bankruptcy and insolvency law and practice.
Companies are not made bankrupt in the same way as people. Instead, they may enter into a form of external management by way of a deed of arrangement with their creditors, receivership or liquidation.
The Corporations Act 2001 sets out the provisions for each of these forms of management.
If you are involved with a company that is in, or is likely to enter into, external administration, seek legal advice on your responsibilities.
Bankruptcy - Legal Services Commission of South Australia