Before declaring bankruptcy, what are the consequences? 

Declaring yourself bankrupt is a significant move, so understanding the consequences of doing so is important.

Although bankruptcy can provide relief if you are unable to repay your debts, there are various negative consequences. Below, we outline the rights and obligations that you need to consider.

Positive Consequences

Bankruptcy is a process which provides protection to people who are no longer able to pay their debts as they fall due. It provides:

• Release from debts. You will essentially be released from most provable debts incurred before the bankruptcy.
• Relief from harassment, litigation and execution from creditors. All communications are transferred to your nominated trustee.
• Legal proceedings. If legal proceedings against you have commenced, the proceedings can only continue through the trustee (very personal claims are exempt, e.g. personal injury or death of a family member claims).

Negative Consequences

The rules and obligations that apply when you declare bankruptcy are outlined below.

• Property ownership. Bankruptcy means losing your property. It will be vested in the trustee, who will then nominate to sell your property in order to repay your creditors.
• Recorded in a public register. Your bankruptcy will be recorded in the National Personal Insolvency Index (NPII) — a permanent record of bankruptcies since 1928.
• Travelling restrictions. You must be granted permission from the trustee for you to leave the country and go overseas.

• Restrictions on obtaining credit. If you apply to borrow funds from a creditor, you may not borrow more than $5,778 (2019; subject to changes in the National Insolvency Index) without informing the credit provider of your bankruptcy.

• Obligations to comply. You must assist the trustee in winding up your estate. This includes producing relevant documents, undergoing an examination of your financial affairs and notifying changes to earnings and income. If you do not comply with these duties, you may incur penalties from the court such as an extension of your bankruptcy.
• Limitations on involvement in a company. According to the Corporations Act 2001, you are prohibited from being a director, promoter or manager of a company without permission from the court.
• Limitations in employment opportunities. Further restrictions apply in terms of certain occupations — for example, you cannot sit in Parliament. There are also industry restrictions in professions such as barristers, solicitors, chartered accountants, security licence holders and tradespeople.