Experience has shown that whilst bankruptcy is a word that describes a circumstance, it nevertheless can have severe psychological ramifications on some people, who feel that they are either failures in life or have been “labelled” a criminal by their creditors, associates, and even friends. You should not consider yourself either!

It is at least interesting that a large percentage of bankruptcies result from the enforcement of personal guarantees provided on behalf of other parties to ensure that a credit facility is provided. Bankruptcy may also arise from the collapse of a business whereby considerable personal liability is levelled on the Directors.

It may also stem from an accumulation of debts as a result of a changing economic climate, retrenchment from seemingly secure jobs, increases in interest rates, and/or other external factors outside the control of the bankrupt.

Bankruptcy should therefore be put into perspective. It is most often a consequence of circumstances and events and not solely the result of the person’s own decisions.

The decay of the financial structure in the family unit often leads to a severe and irreparable wedge being placed on the relationships that have previously existed between husband and wife and/or relatives. While most financial counsellors are mindful of the strains that are placed on relationships during these difficult times, it is unfortunate that this matter is seldom addressed, nor is it adequately provided for under the Bankruptcy Act.

The common reaction to a pending bankruptcy is his/her attempt to distance himself/herself from the bankruptcy. There are many reasons for this occurring, not the least being the emotional duress factor. The husband or wife may well feel that people’s perception of them as a couple is that they are insolvent or that one may have contributed directly to the other’s unfortunate financial state. The lack of understanding and knowledge by either party as to what bankruptcy means and how the bankruptcy administration is conducted is also a contributing factor.

The ramifications on the husband or wife of a bankrupt should always be considered.

Amendments to the Bankruptcy Act now require that an assessment be made of the income of every Bankrupt. This is to determine whether the Bankrupt is required to make Compulsory contributions from his/her income.

The best way to determine whether you might be liable to contribute income is to first, determine how many dependants you have. There is a progressive scale and contact should be made with Queensland Administration Services or I.T.S.A. for the current criteria.

This income assessment includes any associated benefit that you might derive, which might be construed as a Fringe Benefit. For every net dollar in excess of this amount, 50% would be required to be repaid to the Trustee administering the estate. The monitoring of these income assessments is done stringently and at the completion of the twelve month period, the Trustee would normally require you to provide either a Group Certificate, copy of your Taxation Return or some other documentation to substantiate your income. No longer is it simply a matter of divesting oneself of excess income to avoid making contributions.

The Trustee is empowered to extend the bankruptcy, garnish wages, or demand income from either your employer or trust to ensure income contributions are made.

The Trustee is also empowered to make amended assessments every twelve months if he discovers that the income previously estimated for the ensuing twelve months was less than the actual income derived. The shortfall would then have to be made up during the following twelve-month period.

The Bankruptcy Act provides that upon bankruptcy, the divisible assets of a Bankrupt automatically vest with the Trustee appointed. On several occasions, the question has been raised as to what are divisible assets. In broad terms, divisible assets include any interest in real estate where there is some equity, motor vehicles equity over $ 7,050 in value [for individual bankruptcy $14,100 for joint bankruptcy], shareholdings in businesses or partnership equity, stock, debtors, cash at a bank or in hand, works of art, interests in farms, crops and Charges over other people’s assets, tools of the trade over $3,200. There are numerous additional assets including certain forms of Superannuation and term life insurance which are dependent on certain criteria. Businesses that you operate or have a shareholding in may also be taken by your Trustee for the benefit of your creditors.

Creditors’ rights are altered by bankruptcy. Their right to sue for their debt is converted to a right to prove in the estate for their debt.

If you have any reservations as to whether an asset might be considered to be a divisible asset available to the Trustee, then inquiries should be made with Queensland Administration Services or I.T.S.A.

Section 229 of the Corporations Law stipulates that if you are an insolvent you are precluded from acting as an officer of a company. The word officer includes a director or person who is in a position to make such decisions that alter the day-to-day running of the company’s affairs.

The limitation does not apply to partnerships other than where a partnership trades in a separate name. In this regard, you should notify any potential credit provider of the partnership that you are an undischarged bankrupt/before incurring credit.

[This requirement also applies to a bankrupt who trades as a sole trader.]

It is presently an offence to incur credit over $3,200 without notifying the other party that you are an un-discharged bankrupt. These figures change yearly.

Should you wish to travel overseas and you have been assessed as being liable to make income contributions to your estate, you may be required to make an application through the Court. The Application would be determined on its merits and it would be dependent upon whether you are currently up to date with your contributions and whether adequate provisions/arrangements have been put in place during your absence, for the continuity of these payments.

The Trustee is no longer required to demand your passport, but the requirement remains at his discretion. He will however often require 30 days’ notice of your intention to leave the country.