What is personal insolvency?
Personal insolvency is when an individual has unmanageable debts and may be forced to declare themselves bankrupt. Personal insolvency is when you are unable to repay your debts and you are legally released from most debts you owe and debt collectors will stop contacting you. Being declared personally insolvent is a big move and you must carefully weigh up whether this is the correct decision for your personal circumstances. If you are personally insolvent you will be declared bankrupt for three years and a trustee will be appointed to look after your affairs. The fact you have been declared bankrupt will be on your credit history report for 2 years from the date your 3 years of bankruptcy ends. This means that 5 years from the date you declare that you are bankrupt and personally insolvent you may not act as a director of a company without special permission from a court.
What actions can be taken if I am facing personal insolvency?
If you are considering declaring personal insolvency you must lodge a Declaration of Intention (DOI) to present a debtor’s petition. If you lodge a DOI then immediately all creditors of your company will be notified that you have lodged your application and a copy of your finances will be provided to creditors. Lodging this document is the first step to declaring bankruptcy and creditors of your company can apply to the court to then declare you bankrupt.
Declaring or being declared bankrupt and personally insolvent can have long lasting ramifications against you and your business. Your assets may be sold to pay outstanding creditors and your revenue and occupation may be affected. While being found to be personally insolvent may release you of most of your debts, there may be some debts that you may not be released from. It is possible that you will also face travel restrictions including surrendering your passport. Your name will be listed on the National Personal insolvency Index and your credit history will be affected. Your bankruptcy will be administered by a trustee for the 3 year period. While you may be able to keep some of your assets such as vehicles up to a certain amount and household goods and sold up to an indexed amount, other assets such as your home may be sold.
By law, you are forbidden from concealing any assets or property both in Australia and overseas and you may face charges if you do. If you are personally insolvent you may not be able to hold some public positions and if you work in other businesses that go by different names then you must inform them that you are bankrupt and personally insolvent.
Personal Insolvency Agreements (PIA)
You may also need to sign a Personal Insolvency Agreement (PIA) which is a legally binding arrangement between you and your creditors in which you offer to pay them in instalments or designated lump sums. A special resolution must be passed in order for you to be eligible for a PIA and a majority of creditors who are owed at least 75% of the creditor debts must vote “yes” to the PIA. If this vote is accepted then it must be accepted by a special resolution of your creditors. You must be living in Australia and insolvent in order for a PIA to be proposed. You must also not have suggested a PIA in the previous six months unless you were given special leave by a court to do so. If the PIA is accepted then all creditors are bound to follow the proposed PIA. If the PIA is rejected, creditors may choose to declare you bankrupt or may allow you to come to another financial arrangement with you. If the PIA is put on hiatus then you cannot appoint another trustee for a six month period unless you are given special leave by the court.
What should I do if I am facing personal insolvency?
If you believe that you are facing personal insolvency or at risk of facing bankruptcy then you should contact our insolvency lawyers immediately. Being declared bankrupt can have long lasting consequences for both you and your business and it is important that you act as soon as possible in seeking legal advice.
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