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Who can become bankrupt?

Only people can be made bankrupt (not companies). Companies cannot become bankrupt under the Act; they are wound up (or liquidated) under the Corporations Act 2001 (Cth).

Where there is a partnership, all or a majority of the partners in a business file for bankruptcy. If a majority of the partners apply for bankruptcy, any other partners will have to take action to avoid also being declared bankrupt.

A married person who has debts that he or she cannot pay can be made, or can become, bankrupt. Normally this will have no effect upon the person's spouse, provided they are not a guarantor or jointly liable for the debt (in which case the creditor will normally require that he or she pay the total debt).

A child (a person under 18) can only be made bankrupt if there is an enforceable debt (in most cases, only contracts for necessary goods or services are enforceable against children), although children can enter bankruptcy voluntarily. The legal definition of necessary goods and services (called necessaries) is complex (see consumer contracts), although it appears in practice that the trustee decides whether goods or services are necessary and is generally sympathetic to a child in these circumstances. A trustee might consider food, clothing and accommodation to be necessaries, but other items, such as cars or even trade debts, may not be.

People who are not Australian citizens can be made, or become, bankrupt and have their assets in Australia made available to their Australian creditors [Bankruptcy Act 1966 s 43].

Sometimes people who are not insolvent (that is, who have enough money or property to pay their debts) are made bankrupt because they do not take action when a bankruptcy notice or petition is issued against them. Although, after bankruptcy, they might pay the debts and obtain a discharge or annulment (cancellation) of the bankruptcy, the disadvantages of having been made bankrupt continue, including having their name remain on a national register called the National Personal Insolvency Index (NPII) as a permanent record.

People who become bankrupt while already bankrupt are discharged from each bankruptcy (unless an objection is lodged) three years and one day from the date the statement of affairs is filed for that bankruptcy [Bankruptcy Act 1966 s 149].

Who can become bankrupt?  :  Last Revised: Mon Oct 25th 2010
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.