Why do I need to go bankrupt?

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Company directors are exposed to personal risk in a number of areas. The main areas include:

• liability for business debts under a personal guarantee

• receipt of a Director’s Penalty Notice (DPN) from the Australian Tax Office (ATO) that has expired

• having unpaid and unreported GST, PAYG & Superannuation Guarantee Charge (SGC) that was not reported within the required timeframes

• claims made by the Liquidator against the director(s).

Entering into bankruptcy in an organised and controlled manner will bring finality to these personal liabilities. 

 

Preparing for bankruptcy is important.  Personal assets, such as the director’s equity in the family home or motor vehicles, can be sold for a fair market value and therefore protected from claims by a Bankruptcy Trustee. 

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What happens in a bankruptcy?

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Bankruptcy can evoke an emotional response in people. Like many things, the fear is worse than the reality. Bankruptcy is not a punishment, and is meant to provide an opportunity for people to deal with insurmountable debts and make a fresh start. Let's address a few myths and misunderstandings about bankrupcty!

 

• Myth: Everyone will know. My friends and the other parents at school will know.

• Fact: Only creditors of the bankrupt will be advised. Bankruptcy is not advertised and there is no reason anyone other than a creditor will know.

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• Myth: Bankruptcy lasts for 5 or 7 or 10 years

• Fact: The current term of bankruptcy is 3 years provided the bankrupt complies with their obligations under the Act. There has recently been discussion that the term of bankruptcy may be reduced to 1 year, but there has been no legislation proposed at this time. Even if the term was reduced to to 1 year, certain obligations of the bankrupt would continue for 3 years. 

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• Myth: I will lose my house if I go bankrupt.

• Fact: This is not necessarily the case. If bankruptcy is entered into in an organised and controlled manner the family home can be retained. We can assist your clients with this. Often our primary goal is to preserve the family home, and we have well defined systems and processes to achieve this outcome.

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• Myth: I cannot travel overseas if I am bankrupt.

• Fact: A bankrupt can travel overseas, and just requires permission from the Trustee first. This is a simple and straightforward process than we regularly assist our clients with.

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• Myth: There is a limit to how much I can earn whilst in bankruptcy.

• Fact: You can earn as much as you want. If your income exceeds a certain after tax threshold (based on the number of dependants you have) you need to make a contribution to your bankrupt estate. Once you exceed the after tax threshold you need to pay 50 cents in every extra dollar to the Trustee and you get to keep the other 50 cents.