Being declared bankrupt is hitting rock bottom for most people. The stigma and restrictions that come with being declared bankrupt can be extremely disruptive to your everyday life and even with gainful employment, recovery can be very difficult. Therefore, avoiding bankruptcy in the first place is the best option.
What are your Bankruptcy Options?
What is important to bear in mind is that avoiding bankruptcy essentially means taking actions to prevent a bankruptcy application from being taken out against you by your creditors.
To this end, you must not ignore your creditors’ Letters of Demand, Statutory demands or Writs of summons from Court. This is because if you refuse to respond or decline to accept service of their documents, you may be presumed to be unable to pay your debts, and be made a bankrupt on that basis.
Therefore, the key question is how you may prevent creditors from making the application in the first place. The following are a few options you may consider.
Debt Repayment Scheme (“DRS”)
If what you owe is not more than $100,000, you may be referred to the Official Assignee (“OA“) to assess if you are eligible and suitable to enter into the DRS.
The DRS is an attractive option as it prevents creditors from proceeding or commencing legal actions against you without the leave of the court from the date the DRS commences to the date that the DRS ceases.
Furthermore, your debts will be repaid according to your repayment schedule over a fixed period of time, which will leave you with some measure to exercise control over your finances from the grant of the DRS since creditors will no longer be able to hound you for their whole amounts.
Lastly, you will not be under the same restrictions that bankrupts face.
Private Arrangements
You may enter into private arrangements with your creditors. This is in effect a binding contract and/or a settlement agreement between parties. However, you should be aware that should you not comply with the private arrangement, this will also be grounds for creditors to commence bankruptcy proceedings against you. The creditor may be also able to claim more than previously if it is able to prove that the amount owed by you has increased due to the breach of the private arrangement.
However, the advantage of private arrangements is that the parties remain fully in control of the repayment process. The terms and conditions of the repayment are a matter of negotiation between parties.
Therefore, you can enter into a private arrangement with creditors to pay debts by instalments, at an agreed upon amount and time. Further, it is also possible to reschedule payments or being granted an extension of time to liquidate assets or seek other financial sources to repay debts.
It is recommended that you be truthful and honest with your creditors on your financial position at this stage. This prevents creditors from issuing statutory demands due to a lack of clarity on when they may expect repayment, which will force you to respond as ignoring or non-payment of the statutory demand constitutes grounds for the creditors to make a bankruptcy application against you.
Voluntary Arrangements
You may also apply to court for an interim order for a Voluntary Arrangement (VA) under Part V of the Bankruptcy Act (“BA“). Essentially, a VA is a formal arrangement between you and your creditors to repay the debt. However, you must be supervised by a nominee. The nominee specified must be a:
Registered public account; or
A lawyer; or
A person gazetted by the Minister.
A VA comes with significant advantages as opposed to bankruptcy. Firstly, if you can show that you intend to make a proposal for a VA, you will be able to apply for an interim order. The function of the interim order is to suspend any action or legal proceeding already pending against you, and prevent any action or legal proceeding from being initiated against you. Secondly, the VA does not impose restrictions on you that a bankruptcy order would.
However, after the interim order is granted by the court, you must work with your nominee and disclose all assets and liabilities and make a proposal on how you intend to repay your debts to your creditors. Otherwise, the interim order may be discharged.
After your proposal is made, your nominee will prepare his report and summon a creditors’ meeting for the purpose of approving the proposal. If the VA is accepted by the creditors during the creditors’ meeting, the VA will be successfully implemented and you and all creditors who were entitled to vote at the meeting will be bound by the terms of the VA.
However, please be aware that if you do not comply with the terms of the VA, any creditor bound by the VA may make a bankruptcy application against you.
How Can We Help?
As can be seen from the above, the best methods to avoid bankruptcy is to get in contact with your creditors and negotiate with them to stop them from serving a statutory demand or an official document demanding payment.
If they do so, that will constitute grounds for them to commence bankruptcy proceedings against you. If you wish to avoid bankruptcy and require representation to work out solutions with your creditors, please contact us and we will have a fruitful consultation with you on your available options.
