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Disadvantages of Bankruptcy

People who become bankrupt also face many disadvantages, for example:

  • bankrupts receiving over a certain income must pay contributions during the bankruptcy (but not from social security payments), and this amount is indexed. For up to date information regarding the amount see the table on the AFSA website here See also income.
  • the bankruptcy may be published in trade journals or a newspaper, and information is available on a searchable register called National Personal Insolvency Index (NPII). Information can be obtained by anyone who pays a search fee (including a copy of an extract). More information on searching the NPII is available on the AFSA website.
  • money and valuable goods (with certain exceptions) owned or being paid off at the date of bankruptcy, or acquired during the bankruptcy, will vest in the Trustee and be available for the Trustee to sell to pay creditors
  • a payment made to a creditor within six months before the filing of a debtor's petition and potentially a longer period under a creditor's petition, which gives that creditor a preference over other creditors, is void and may be recovered by the trustee and distributed to all the creditors [Bankruptcy Act 1966 s 122].
  • it is an offence against the Bankruptcy Act 1966 for a bankrupt to borrow, or write a cheque for an indexed amount (see AFSA website for details of the amounts) or more without informing the other person of the bankruptcy [Bankruptcy Act 1966 s 269(1)(a)]
  • bankrupts who do not co-operate with their trustees by fulfilling certain duties (such as notifying details of earnings and changes of address) may be punished by the court or have their bankruptcy extended
  • former bankrupts are likely to have difficulty in obtaining credit in the future
  • the bankruptcy is likely to last for three years. If the trustee lodges an objection which is not withdrawn, the bankruptcy will last for five or eight years, see Ending Bankruptcy.
  • under the Corporations Act 2001 (Cth) [s 206B(3)] a current bankrupt cannot be a director, promoter, or manager of a company without the permission of the court
  • a bankrupt may operate a business (not a company), but if a business or assumed name is used, every person with whom they have dealings must be told of their bankruptcy and real name [Bankruptcy Act 1966 s 269(1)(b)]. Any assets acquired by the business may be claimed by the trustee
  • in some situations the court can order that the property of an entity (eg a company, trust or partnership) controlled by a bankrupt vest in the trustee. This may occur where the bankrupt was unable to pay his or her debts and provided personal services for, on behalf of, the entity [ss 139D, 139E]
  • a bankrupt may have committed a criminal offence if, within two years before going bankrupt, the person gambled or speculated in a rash and hazardous way in light of the person's financial position at that time [Bankruptcy Act 1966 s 271]. The penalty is gaol for up to one year
  • a person cannot hold a licence for some trades while bankrupt. For example, a building licence cannot be held for two years after becoming insolvent (five years if a person was a director of a wound up corporation) [s 9(1)(c) of the Building Work Contractors Act 1995 (SA)]
  • the Second-hand Dealers and Pawnbrokers Act 1996 (SA) [s 6], prohibits bankrupts and people who are subject to a composition or deed or scheme of arrangement from being second-hand dealers or pawnbrokers.
  • the Plumbers, Gas Fitters and Electricians Act 1995 (SA) [s 9(1)(c)], prohibits bankrupts and people who are subject to a composition or deed or scheme of arrangement from holding a licence to practice as a plumber, electrician or gas fitter.
  • a person can be employed as a real estate sales person, but cannot hold a real estate licence under the Land Agents Act 1994 (SA) [s 8(1)(d)] if bankrupt or subject to a composition, deed or arrangement.
    Disadvantages of Bankruptcy  :  Last Revised: Mon May 8th 2017
    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.