Debts & Creditors: What happens to them if I go bankrupt?

Debts & Creditors: What happens to them if I go bankrupt? The provider of this information is Insolvency & Trustee Services Ausralia.

DEBTS & CREDITORS: WHAT HAPPENS TO THEM IF I GO BANKRUPT? Reproduced by express permission form the Commonwealth Government, Insolvency and Trustee Services Australia. June 2004 Edition How will bankruptcy affect my debts? A debt is money that you owe to a creditor. Once you are bankrupt, creditors with debts included in bankruptcy should stop contacting you. You must include all your debts in your Statement of Affairs, including: debts you owe jointly with someone else any loans to you from friends and relatives. Your bankruptcy will not affect a creditor's right to pursue another person, such as: a person who is a guarantor for your debts debts in joint names with another person (eg your wife or husband). You are released from certain debts at the end of your bankruptcy (after discharge from bankruptcy). However. there may be some debts that you will still have to pay. Debts you still have to pay during bankruptcy 1. Debts which are not provable in bankruptcy. Creditors of this type of debt cannot receive any money from your bankrupt estate but they can continue debt recovery action against you even during bankruptcy eg: penalties and fines imposed by a court damages from accidents (eg car accidents) unless, before bankruptcy, the sum of damages has been fixed by a court judgment or you have a written agreement with the other party student assistance/supplement loans 2. Any new debts you run up on or after your date of bankruptcy. Debts you still have to pay after your bankruptcy ends Creditors of certain types of provable debt can both receive money from your bankrupt estate and continue debt recovery action against you after your bankruptcy ends eg: child support debts maintenance accumulated HECS (Higher Education Contribution Scheme) debts owing when you became bankrupt, excluding any amount shown on a notice of assessment issued by the Australian Tax Office (ATO) before your bankruptcy - ask the ATO if you need more information debts incurred by fraud. Note: non-payment of essential services (electricity, water, telephone etc) and parking/traffic fines can cause difficulties. See Unsecured Creditors for further details. Exempt assets are assets or property which cannot be sold in bankruptcy by the trustee More information on assets is available in the pamphlet: Assets: What happens to my assets if I go bankrupt? How will my creditors be affected? Secured creditors A secured creditor is a creditor who holds a security over your asset which entitles them to take and sell the asset if you fall behind in payments. Examples of secured creditors include: Banks with a mortgage over a house Finance companies with a chattel mortgage, hire purchase, lease or bill of sale over a car, furniture or electrical goods Creditors secured by government legislation over houses and land, such as council/shire rates and water rates. If you become bankrupt, secured creditors will probably contact you to find out what you plan to do. If you are in doubt about whether one of your creditors is secured, you should first ask the creditor. If you are still doubtful, ask a financial counsellor or your trustee. If you wish to keep an exempt asset which is secured, you will need to keep paying for it or the creditor will take it back. A secured creditor cannot take an asset back just because you are bankrupt. Your trustee can sell a non –exempt asset if it is of value, even if you are paying it off (eg a house). In some cases creditors retain ownership of items you have bought until their debt has been paid in full (eg retention of title, consignment, commission). Creditors who hold a security deposit or bond (eg a landlord) are entitled to keep it to reduce your debt. The ATO can keep your tax refund and offset it against any debt you owe to the ATO and/or other Commonwealth office (eg Child Support Agency, Centrelink). If a secured creditor incurs a loss from the sale of the secured asset, they may claim the loss in your bankruptcy as an unsecured creditor. Unsecured creditors An unsecured creditor is a creditor who generally does not have the right to take back an item you bought but have not paid for. Examples may include: banks, finance companies and credit unions for person loans, credit cards and store cards telephone and internet providers tradespeople such as builders and electricians professionals such as doctors and lawyers. If you become bankrupt, any legal action by unsecured creditors against you, such as a summons, garnishee (a compulsory deduction from your income or bank account) or recovery action by a sheriff or bailiff, must stop. If any unsecured creditors demand that you pay their debt, you should immediately tell your trustee who should inform the creditor of the terms of your bankruptcy. If you are being harassed or coerced about debts you may have rights under the Trade Practices Act. For further information visit the Australian Competition and Consumer Commission website www.accc.gov.au or call the Infocentre 1300 302 502. Providers of essential services (eg electricity, gas, telephone, water) to your home may disconnect the service if you do not pay your current account or pay a security deposit/bond. If you later move to another home and still owe them money, you may be required to pay an increased deposit/bond to obtain the service. In most States, if you do not pay debts for parking, traffic and other infringements of State laws, your driver’s licence and/or your motor vehicle registration may be suspended until payment is made. Bankruptcy does not stop such suspensions. Debts and creditors can be difficult to sort out. Talk to a financial counsellor or ITSA if you are unsure about what type of debts or creditors you have. ITSA offices can provide you with a list of advisers (see rear cover or www.itsa,gov.au) Where to contact us Telephone 1300 364 785 ITSA website wwwitsa.gov.au ITSA Offices ACT Level 2, NFF House, 14-16 Brisbane Avenue BARTON ACT 2600 Tel: 1300 364 785 Fax: (02) 6270 3608 email: itsa.canberra@itsa.gov.au New South Wales GPO Box 548 SYDNEY NSW 2001 Level 8, 135 King Street SYDNEY NSW 2000 Tel: 1300 364 785 Fax: (02) 8233 7891 email: itsa.sydney@itsa.gov.au Queensland Brisbane PO Box 10443 Adelaide Street BRISBANE QLD 4001 Level 16, 340 Adelaide Street BRISBANE OLD 4000 Tel: 1300 364 785 Fax: (07) 3360 5466 email: itsa.brisbane@itsa.gov.au Townsville PO Box 1527 TOWNSVILLE QLD 4810 Level 1, National Australia Bank Building 315 Ross River Road AITKENVALE OLD 4814 Tel: 1300 364 785 Fax: (07) 4727 0500 email: itsa.townsviIIe-0itsa.gov.au South Australia/Northern Territory GPO Box 2604 ADELAIDE SA 5001 Level 18, Grenfell Centre 25 Grenfell Street ADELAIDE SA 5000 Tel: 1300 364 785 Fax: (08) 8112 4305 email: itsa.adelaide@itsa.gov.au Tasmania GPO Box 850 HOBART TAS 7001 Level 4, ANZ Centre 22-26 Elizabeth Street HOBART TAS 7000 Tel: 1300 364 785 Fax: (03) 6221 7700 email: itsa.hobart@itsa.gov.au Victoria Level 10, Melbourne Central 360 Elizabeth Street MELBOURNE VIC 3000 Tel: 1300 364 785 Fax: (03) 9272 4900 email: itsa.melbourne@itsa.gov.au Western Australia GPO Box H536 PERTH WA 6841 Level 12, Durack Centre 263 Adelaide Terrace PERTH WA 6000 Tel: 1300 364 785 Fax: (08) 9268 1298 email: itsa.perth@itsa.gov.au More information pamphlets are available. See the website or contact ITSA for a complete list.