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Debts, Bankrupts and a Dose of Reality

Commercial Law

In a recent court dispute my opposing lawyer suggested that if we continued the case, won against his client, and ended up bankrupting her, it would probably do his client a favour. I have heard this many times – the idea that being bankrupted is an easy way out of your debts.

I can see why people might be tempted to think this way. Under current indexation, a bankrupt can keep the first $53,280 (net) of their annual income, and this amount increases depending on the number of dependents, up to the level of $72,461. They can also keep tools of trade up to the value of $3,650 and vehicles worth up to $7,500.

However the downsides of being bankrupted are many, and should make anybody considering this “easy way out” to think again. Bankrupts will forever be listed on the National Personal Insolvency Index as having been bankrupted. This means that every time they apply for finance in the future, they will encounter difficulties raising a loan, and if they can borrow, they will likely be lumbered with much higher interest rates.

Bankrupts cannot travel overseas without the consent of their trustee, and will usually have had to surrender their passport. A bankrupt cannot hold the position of a company director without court permission. Going through bankruptcy will not provide a means of escape from child support obligations, court fines, HECS debts or debts incurred by fraud – these liabilities carry over unaffected. A bankrupt must constantly keep their trustee updated with their movements and financial arrangements.

If a debtor claims that they will not pay you, and are happy for you to bankrupt them, you may wish to remind them of all of the above consequences of such an action. Would they really prefer all of those terrible consequences to simply settling their account with you?