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Australian Bankruptcy Explained

More than likely, you, or someone you know, is contemplating filing Bankruptcy or has already filed Bankruptcy. Bankruptcy is a process that allows debtors who owe more money than they can pay to either erase their debts or apply a payment plan to pay a percentage (or all) of their debts over time. This allows you to basically start over with financial planning and credit standings.

Either way, it is very important to understand Bankruptcy, the laws involved, steps to filing and maintaining a good credit limit afterwards to ensure continued success of financial planning after starting over.

Early warning signs of possible bankruptcy would include:
- an inability to make monthly payments on all debt
- loss of some or all income that then prevents you from maintaining monthly payments
- a disability that prevents you from working your current level of income, or
- an unbalanced debt to income ratio.

In Australia, an individual must file a debtors petition, a statement of affairs and an acknowledgment of having received and read all pertinent paperwork with the Official Receiver. A creditor can also file bankruptcy against you in the same manner. This will at least ensure that they receive funds from you for the debt incurred with them.

You will need a trustee to oversee the bankruptcy. This person can be someone you choose by filing a Consent to Act with the Official Receiver or the Official Receiver can appoint a trustee.

The duties of a trustee for bankruptcy purposes will include handling creditors and contributions and accepting the assets of the bankrupt person that are not protected under bankruptcy laws. The trustee also has the power to gain back any assets the bankrupt person has transferred to another for protection of that asset.

Some assets are protected from bankruptcy under Australian law. This will include most household goods, limited tools of trade, a set limit of motor vehicles and superannuation. Motor vehicle limits can change so make sure you refer to current amounts on this exclusion.

You will also need to refer to current amounts when filing for bankruptcy if you have a relatively high income, because you will also be required to make regular contributions back to the bankrupt estate. This will be paid back from your income. A few other factors that affect this contribution determination will depend on your income after any tax or child support payments, and the number of dependents you may have.

A bankruptcy period in Australia is usually 3 years but can be prolonged for up to 5 years under certain circumstances.

Certain conditions also apply when in bankruptcy status. Obtaining credit will be reduced, written approval is required for travel overseas, you will be disqualified from managing a corporation unless permission is received from the courts and you may not hold certain job licenses such as real estate or insurance.

The only requirements of filing bankruptcy in Australia are that you be a legal resident of Australia, residing in the country at the time of bankruptcy or you must own a home or business in Australia.

Since bankruptcy can help you eliminate your debt, you must also think carefully in deciding to eliminate that debt by bankruptcy. It will change your life and you may not want to give up certain things in order to reduce your debt.

It is important that you consult with a company such as specialists in bankruptcy laws for Australia in order to make an informed decision of your options.                                
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