Bankruptcy Myths: Check Your Facts

Navigating the turbulent waters of bankruptcy is fraught with myths and misconceptions. This guide serves as your compass, helping to steer clear of common misunderstandings and chart a course towards financial recovery. Understanding the true nature of bankruptcy can help you sail towards a more stable future; you can test your knowledge before you hover over the answer as we dispel some common misconceptions about bankruptcy.

Bankruptcy will clear my tax debt.

Bankruptcy may not clear all tax debts. Some tax obligations, especially recent ones, may not be dischargeable. It's crucial to consult with a professional for advice on your specific tax situation.

I will have to forfeit my home.

Your home is not automatically exempt from bankruptcy. However, there may be ways to keep your home, depending on your circumstances. Professional advice is essential to explore your options

I can have my accountant or bookkeeper manage my bankruptcy.

A trustee is appointed to manage your bankruptcy. This can be a registered trustee or the Official Trustee (AFSA)

All of my income goes towards bankruptcy claims and payments.

You can earn and save money during bankruptcy, but if your income exceeds a certain threshold, you may need to contribute towards your bankruptcy. The threshold varies based on the number of dependents.

I will lose my car.

You can keep your car if its value is below a certain threshold; it's your primary mode of transportation, and you continue making any necessary payments.

It will cost me a lot of money to declare bankruptcy.

There is no fee to lodge a bankruptcy form with AFSA. However, if you appoint a private trustee, there may be costs involved.

I can file for bankruptcy myself.

You can file for bankruptcy yourself, but it's advisable to seek professional advice due to the complexity of the process. A debt specialist can assist with paperwork and lodge it on your behalf.

Declaring bankruptcy will impact my spouse or partner.

Your bankruptcy does not directly affect your spouse or partner unless you have joint debts or your financial situations are intertwined.

I won't have access to money or bank accounts.

You are allowed to have a bank account and can access money for living expenses. However, if your income exceeds a certain threshold, you may need to make contributions to your estate.

My job and employability will be affected.

While bankruptcy itself does not prevent you from being employed, it may affect your ability to work in certain professions or to obtain a license in some trades.

My bankruptcy will not be publicly recorded.

Yes, your bankruptcy will be recorded on the National Personal Insolvency Index (NPII), which is a public record.

I will lose my superannuation.

Generally, your superannuation is protected during bankruptcy. However, contributions made to superannuation that are above the ordinary level to defeat creditors can be recovered.

All my debts will be cleared.

Not all debts are cleared in bankruptcy. Certain types of debts, such as secured debts, child support, and fines imposed by a court, are not discharged by declaring bankruptcy.

Our Bankruptcy Strategies

“With over two decades of experience, and over 500 bankruptcies we are well-versed in the nuances of the bankruptcy process.”

Thyge Trafford - Jones - Bankruptcy Trustee

Engaging a trustee in a bankruptcy scenario ensures that the process is handled efficiently, legally, and with a professional approach.

With TTJ advisory by your side, we can provide you with a structured pathway through the complexities of bankruptcy, ensuring that all legal, financial, and administrative aspects are appropriately managed.

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What if the company can’t pay debts to creditors?

In this case, you may need a Voluntary Administrator (VA) or a Small Business Restructuring (SBR) practitioner. TTJ Advisory can help by: Identifying tax debts tied to director penalties, Negotiating with creditors for debt compromises, Generating working capital through restructuring to address outstanding debts, and Sourcing funding through future profits, personal contributions, or third-party funds. This proactive approach gives you a structured plan to manage debts while preserving the company's ability to operate.
Is liquidation necessary if i can’t pay the debts?

In cases where there is no chance of recovery, commencing liquidation will stop the clock on the DPN and help directors avoid personal liability under certain circumstances. Our in house liquidator will assist you through the process.
I have been issued a lockdown DPN - what do I do next?

Lockdown Director Penalty Notices (DPNs) are issued to directors when a company fails to submit its business activity statements (BAS), instalment activity statements, or superannuation guarantee statements within three months of the due date. Once a lockdown DPN is issued, the penalty becomes fixed, meaning the director is personally liable for the unpaid debt. This liability cannot be removed or cancelled through any other means except by paying off the debt in full. Placing the company into voluntary administration or liquidation will not extinguish this personal liability.
What are your options once you receive a lockdown DPN?

Pay the Debt in Full: The most direct and essential option is to pay off the company’s tax debt in full. This is the only way to clear the liability imposed by a Lockdown DPN. Personal Insolvency Agreement (PIA): This is a legally binding agreement where the director makes a proposal to creditors (such as the ATO) to settle the debts over time or partially. A PIA allows the director to avoid bankruptcy, but it requires the appointment of a bankruptcy trustee to manage the agreement. The trustee will take control of the director's assets and administer the terms of the agreement, including negotiating with creditors. Bankruptcy: If the director is unable to pay the debt or arrange a PIA, declaring bankruptcy may be the final option. In this case, a bankruptcy trustee is appointed to manage the director’s assets and debts. The trustee will oversee the liquidation of assets to pay off the debts and handle communications with creditors, including the ATO.
How are creditor payments prioritised in liquidation?

Payments follow a set order, prioritising employee entitlements and secured creditors before other unsecured debts. Unsecured creditors can file claims and receive distributions based on available funds and the priority order.