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Tips for avoiding bankruptcy

Bankruptcy occurs when you cannot pay your debts.

To avoid bankruptcy, you can seek help from a financial counselling service, community legal centre, registered trustee, registered debt agreement administrator, Lawyer or Accountant. These people are professionals and will usually advise you on debt agreements and personal insolvency agreements.

  • A Debt Agreement is an act of bankruptcy and a creditor can use this to apply to make you bankrupt. This agreement is between the debtor and their creditor where they accept a sum of money which the debtor can afford.
  • A Personal Insolvency Agreement (PIA) is a formal way to deal with unmanageable debt. This is a way to settle your debts with the creditor without becoming bankrupt. To do this you must be insolvent, in Australia and not have proposed another PIA in the last 6 months.

Changes that you can make

However, before you reach this point, here are some useful tips to help avoid bankruptcy in advance.
  1. Don’t ignore your financial problems, this will only make things worse.
  2. Stop getting more loans and credit cards, increasing your debt doesn’t help.
  3. Be honest with creditors about your money situation, some will be open to renegotiation.
  4. Pay the most important bills first. These include, mortgage, rent and utilities.
  5. Look at changing your insurance, mortgage or electricity provider to save money.
  6. Find out if you are eligible for Government benefits. Visit Centrelink online or in person.
  7. See if you can get help from the Government with your mortgage.
    • Mortgage Assistance – If eligible, you can apply for an early release of your superannuation benefits for mortgage assistance. Visit the Department of Human Services
  8. Have all your bills set to the same date to avoid late fees.
  9. Live within your means. Use cash to monitor your expenses.
  10. Sell extravagant purchases like expensive cars and designer clothes.

Claiming bankruptcy

If your situation isn’t solvable in one of the ways mentioned above, you can claim bankruptcy in two ways:
  • Voluntary Bankruptcy/Debtor’s Petitions - Personally claiming bankruptcy. To do this you will need to complete and lodge a:
    • Debtor’s Petition. Includes an application to become bankrupt and a signed acknowledgement of Prescribed Information.
    • Statement of Affairs
These documents must be completed and lodged with the Official Receiver within 28 days of signing the forms.
  • Creditors making you bankrupt - If you are unable to pay your debts, have been unable to enter into an arrangement with your creditors and you haven’t voluntarily made yourself bankrupt, a creditor owed $5000 or more may apply to the court to have you made bankrupt. You will be required to complete a Statement of Affairs and lodge it with the Australian Financial Security Authority within 14 days of being notified.
Shine Lawyers’ dedicated insolvency law team assists individuals and small businesses in financial difficulty. We can help navigate Australia’s insolvency law regime to get the best outcome for you. We may be able to assist. Contact us today, or find out more about these services here.

Written by Shine Lawyers. Last modified: June 16, 2016.

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