Bankruptcy is generally a last resort. However, it can have some advantages, for example:
- Most debts are extinguished. Once a bankrupt is discharged, provable debts incurred before the date of the commencement of the bankruptcy are automatically and totally cancelled with a few exceptions, see debts.
- When people enter bankruptcy, some of their property comes under the protection of the Act and cannot be taken away to help pay their debts [Bankruptcy Act 1966 (Cth) s 116, Bankruptcy Regulations 1996 (Cth) regs 6.03 and 6.04]. This includes necessary household furniture and a primary means of transport eg motor vehicle or motorbike worth less than then indexed amount, see property a bankrupt can keep. This means that most ordinary household items can be kept by the bankrupt.
- a person cannot be pursued by creditors once the person enters bankruptcy [s 58]. All further communications about the debts should take place between the bankrupt's creditors and trustee.
- social security payments are protected under the Act.
- The trustee will ask a bankrupt to pay part of his or her income if there is money left over after allowing for all ordinary living expenses, such as rent, food, clothes, and even pocket money for children unless assessed as a compulsory contributor, and then in accordance with the legislation. As many people entering bankruptcy have been paying large portions of their income to creditors, this can be a great relief.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.