What is Voluntary Bankruptcy?
Voluntary Bankruptcy happens when you are unable to pay your debts and cannot come to an agreement with your creditors. When this happens you may decide to voluntarily lodge a petition to become bankrupt.
When people talk about bankruptcy, there are mostly referring to voluntary bankruptcy. In a voluntary bankruptcy, you make the decision, of filing for bankruptcy and then file the petition and other papers with the court. Most of the consumers file either a Chapter 7 or Chapter 13 petition. However, there are other options also like Chapter 11 (business reorganization bankruptcy) and Chapter 12 (for family farmers and fishermen)
Process for Declaring Bankruptcy
The first step in declaring bankruptcy is lodging a petition to become bankrupt (a debtor’s petition) and a statement of affairs.
Where you are unable to pay your debts and cannot arrive at an arrangement with your creditors, you may decide to lodge a tender to lodge a debtor’s petition to become bankrupt.
Note, when you lodge your tender, you are also to lodge a statement of affairs.
If the Financial Security Authority accepts your tender, you’re bankrupt.
Generally, the debtor’s petition and statement of affairs is checked by the FSA within 24 to 48 hours.
Once your form is accepted, you become bankrupt. This means you cannot change your mind after lodging your application.
A trustee is appointed to administer the bankruptcy.
Note that, if you become bankrupt, all your property automatically vests with the trustee. This includes property acquired during the bankruptcy period.
In a bid to pay your creditors, your trustee can
- Sell your assets (even though you will be able to keep certain kind of assets)
- Recover any income over a certain limit.
- Carry out an back check on your affairs and in certain cases, recover property that you have transferred to someone else before your bankruptcy.
In case you want to rearrange for a trustee of your choice to help your bankruptcy, you are to ask the trustee to fill in a form and lodge it with your debtor’s petition and statement of affairs. Where a form is not lodged with your application, the official trustee acts as your trustee or arrange with your creditors to appoint a trustee. Note, your creditors may decide to change the trustee at any time.
What Happens When Your Bankruptcy Ends?
After you have filed the petition, you will be due for discharge from bankruptcy three years and one day.
It can be raised to five or even eight years if your trustee happens to lodge an objection to your discharge.
You don’t need to apply for discharge. But you or your trustee can obtain an extract of the NPII which shows your date of discharge.
Your name appears on the NPII forever.