Options for dealing with unmanag

Being unable to manage your debts can be caused by various reasons. For instance, sudden unemployment, ill health and breakdowns in family relationships are often the causes that trigger Financial Hardship.

It is important to recognise financial difficulty early so that you can address the situation before it becomes unmanageable.

If you are having trouble managing your debts, there are actions you can consider before turning to the formal arrangements offered by the Bankruptcy Act.

Read Dealing with debt: Your rights and responsibilities a government publication which gives you information on dealing with debts, debt collectors and disputes.

Informal arrangements

Some creditors could give you more time to pay, agree to renegotiate repayments or accept a smaller payment to settle the debt.

You can contact your creditors directly or you can ask for help from a financial counselling service, a community legal centre, a registered trustee, a registered debt agreement administrator, a lawyer or an accountant. They will talk to you about your options and may speak to creditors on your behalf, help with budgeting advice or give you advice about other sources of government assistance.

You may also wish to review the ‘Managing debts' information available on the MoneySmart website. MoneySmart is run by the Australian Securities and Investments Commission (ASIC) and offers free and independent guidance to help you make the best choices for your money.

Formal arrangements

The Bankruptcy Act provides formal options for dealing with unmanageable debt. The legislation specifically sets out what you and your creditors can or cannot do under each of these arrangements. We strongly recommend that you read the Personal insolvency information booklet [PDF 562KB] before you complete any of the forms for debtors. The booklet provides important information about some of the consequences of presenting these forms to us.

Interim relief - Declaration of intention to present a debtor's petition

This stops your unsecured creditors garnisheeing your wages and/or the bailiff or sheriff seizing your assets to recover debts for a period of 21 days. It does not prevent a secured creditor from repossessing an asset. You could use that time to speak to your creditors, consider other options or seek advice. You do not have to become bankrupt after this period. You can only lodge one declaration every 12 months. Read more about interim relief.

Debt agreement

A debt agreement is a legally binding arrangement between you and your creditors that must be accepted by the majority (in value) of your creditors. You can offer to pay your creditors in instalments or with a lump sum payment that may be less than the full amount of your debts. You can also propose a freeze on your debts for a set time to let you get back on your feet. Your unsecured debts, assets and after-tax income must be under certain limits to propose a debt agreement. Read more aboutdebt agreements.

Bankruptcy

Voluntary bankruptcy

Where you are unable to come to an arrangement with your creditors, you can consider petitioning for bankruptcy. Upon becoming bankrupt your trustee will sell those assets that you are not allowed to keep to repay your creditors to the extent possible.
While you are a bankrupt, if you earn an after-tax income above a defined threshold you will be required to pay half of the excess amount to your trustee for payment to creditors.
You will be bankrupt for a minimum of three years. This period can be extended by the trustee under certain circumstances. After that period you are discharged from most of your debts.

Creditors making you bankrupt

If you are unable to pay your debts and you have not otherwise entered into an arrangement with your creditors or voluntarily made yourself bankrupt, a creditor may choose to apply to the court to have you made bankrupt.

Personal insolvency agreement

A personal insolvency agreement is also a legally binding arrangement between you and your creditors whereby you offer to pay them in full or part by instalments or a lump sum. Your offer must be accepted by a special resolution of your creditors. Unlike a debt agreement, there are no debt, asset or income limits to be eligible to propose a personal insolvency agreement.
You must appoint a controlling trustee who will investigate your affairs and report to your creditors. Should your creditors accept the proposal, a trustee must administer the agreement. Read more about personal insolvency agreements.