The Law Handbook 2024

366 Section 5: Managing your money attachment of earnings order. ( See Chapter 5.2: Are you in debt?) 5 The Bankruptcy Act protects superannuation, life assurance payments and compensation payments for personal injuries. The Act also gives some protection to assets bought with these payments. These payments and assets are not protected if a debtor is not bankrupt and the creditor gets an order for payment of a debt in the Magistrates’ Court or other court. Disadvantages of bankruptcy 1 It will probably be very difficult to obtain credit for some time after bankruptcy. A record of the bankruptcy is added to the debtor’s credit report and stays there for five years (see ‘Credit reporting’ in Chapter 12.2: Privacy and your rights) or two years starting on the day that you are no longer bankrupt, whichever is later. 2 The record is kept on the National Personal Insolvency Index ( NPII ), which is an electronic index that can be searched by anyone for a nominal fee. However, information about debt agreements is not publicly available on the NPII indefinitely. 3 Certain areas of employment are not open to bankrupts (because of the rules and legislation regulating that type of employment). A person who is considering bankruptcy should make enquiries about whether bankruptcy will affect the type of work they do or intend to do, especially if a licence is required. Bankruptcy might cause employment problems for company directors, people in managerial positions, lawyers, accountants, tax agents, police officers, estate agents, armed forces personnel, some public servants, licensed builders and security workers. (This is not an exhaustive list.) 4 A bankrupt cannot act as a director or promoter of a corporation, or be involved in the management of a corporation, without the court’s permission. 5 A bankrupt cannot be a trustee of a super- annuation fund. 6 The bankrupt will lose property that is defined by the Bankruptcy Act as divisible . This includes property acquired after the commencement of the bankruptcy (but before the date of discharge) (s 116). 7 The bankrupt might have to pay regular contributions to the trustee if their net annual income is above the actual income threshold amount (AITA) ($68769 net per annum as at October 2023, indexed), if there are no dependants. 8 Insurers can cancel insurance contracts if the insured person becomes bankrupt if there is a term in the contract that specifically says this. 9 Some insurers refuse to insure bankrupts and refuse to renew insurance policies for bankrupts. 10 The bankrupt might be required to surrender their passport to the trustee, and must obtain permission from their trustee to leave Australia (s 272). 11 Depending on the bankrupt’s social circle, the bankruptcy might cause embarrassment. The stigma of bankruptcy is more likely to be felt by bankrupts who have business associates as creditors, by bankrupts who are unable to continue to operate a business, or by those who are barred from a position that they have held in the past, such as company director. 12 The trustee can investigate past financial dealings of the bankrupt. The trustee in some cases has power to recover property that the debtor has transferred in the period beginning five years before the commencement of the bankruptcy (or longer if it was done for the purpose of defeating creditors). 13 Obtaining credit (including writing cheques) of $6852 (as at October 2023, indexed) or more without disclosing the bankruptcy to the person extending the credit is a criminal offence (ss 269(1) (a), (ab), (ac), (ad), 304A(1), (j)). 14 If a debtor has had significant gambling debts and then bankrupts, they might be charged with a criminal offence under the Bankruptcy Act (s 271). Considering all the insolvency options Debtors who are considering bankruptcy should seek advice from an independent and qualified source such as a financial counsellor (see Chapter 5.4: Financial counselling services). If a creditor is threatening a debtor with bankruptcy, the debtor should seek legal advice, especially where there is a court judgment and where the debtor owns divisible property (e.g. a house). For a list of free legal services, see Chapter 2.4: Legal services that can help. Options for managing debt include: • coming to an agreement with the creditors; • a temporary debt protection for 21 days; • a debt agreement under Part IX to manage debt;