Before you consider going into voluntary bankruptcy, we recommend that you consider your financial position carefully as becoming a bankrupt carries significant and serious consequences. We have established relationships with accountants and insolvency practitioners in Perth, Western Australia, who we can liaise with on your behalf to determine your financial position. We can also attempt to negotiate arrangements with your creditors.

1. A person can become bankrupt in two main ways:
   
   

   a. when a creditor obtains a Court Sequestration Order from the Federal Circuit Court of Australia through an action known as a creditor’s petition; and

   b. when a person files for voluntary bankruptcy.

2. Filing for voluntary bankruptcy is done through the Australian Financial Security Authority (AFSA) by filing a form known as a ‘debtor’s petition’. We can assist you in filing a debtor’s petition with AFSA.
   
   
3. The common question people have is why would I go into voluntary bankruptcy when I could wait for a creditor to make me a bankrupt  through a creditor’s petition? The answer largely rests with practical reasons. Consider the examples below:
   
   

   Example 1
   

4. Marry has conducted a reconciliation of her finances which has determined that she is insolvent. Marry attempts to negotiate an arrangement to pay her debts with her creditors but is unsuccessful. Marry decides to file a debtors petition with AFSA and appoints her own trustee in bankruptcy. Marry begins bankruptcy immediately for 3 years and 1 day. Marry’s creditors are dealt with by the trustee. Marry continues to earn good income up to the statutory limit. Marry obtains approval from her trustee to travel internationally to visit family and for work.
   
   
5. Marry asks the trustee in bankruptcy whom she has appointed to again try negotiate an arrangement with her creditors. As Marry and the trustee have a good working relationship, and there is excess funding available for the trustee to do so, the trustee is able to negotiate an arrangement with the creditors.
   
   
6. The arrangement is fulfilled and Marry’s bankruptcy is annulled within one and a half years.
   
   
7. Afterwards, Marry is able to convenience financers that she can repay her debts and obtains finance to purchase a car.
   
   

   Example 2

8. John, a subcontractor, has conducted a reconciliation of his finances which has determined that he is insolvent. John does not attempt to negotiate any arrangements with his creditors. John does not seek to file for voluntary bankruptcy.
   
   
9. A creditor of John’s, Widgets Pty Ltd, commences civil litigation against John in the District Court of Western Australia and obtains judgment against him. Widgets Pty Ltd then seek to enforce that judgment by having the District Court issue a summons to John to attend a means enquiry. John is questioned in Court by Widget’s’ lawyers and Widget’s obtains Court orders to garnishee John’s employment income.
   
   
10. Meanwhile, the mortgagor bank over John’s personal residence takes Court action to repossess the property. John loses his home and has greatly reduced income but is not bankrupt.
    
    
11. If John goes into voluntary bankruptcy now, John would only now begin the 3 years and 1 day. John decides not to go bankrupt. Eventually, Widgets’ lawyers file a creditor’s petition in the Federal Circuit Court of Australia and obtain sequestration orders against John, declaring him a bankrupt. Widgets have filed a consent for their chosen insolvency practitioner to be appointed as the trustee in bankruptcy. John now commences the 3 years and 1 day.
    
    
12. One year later, John receives a job offer from an international mining company and is required to travel there for an interview. John requests the trustee approve the international travel but the trustee rejects his travel over concerns that his disinterest in resolving his debts with his creditors over the years poses risk. John cannot travel but luckily the mining company allows him to attend the interview by Skype instead.
    
    
13. Prior to the Skype interview, the mining company runs a search on the National Personal Insolvency Index and sees that John is currently an undischarged bankrupt. The mining company revokes their job offer.
    
    
14. John asks the trustee to reconsider his travel on the basis that he will earn significantly more money and requests that the trustee negotiate an arrangement with the creditors. However, given the history between John and his creditors, the trustee considers it very unlikely that the creditors will consider any offer and therefore, the trustee does not want to incur unnecessary expense in attempting to do so.
    
    
15. John remains an undischarged bankrupt for 3 years and 1 day. Following that time, John is unsuccessful in applying for finance. Further, potential business partners are reluctant to work with John given his bankruptcy.
    
    

    Take Aways

16. The practical effects of the different approaches in examples 1 and 2 are clear. What is less clear is whether both are comfortable and happy with their chosen approaches. Although John is in the position he is in now, he may have accepted the risks associated with prolonging his bankruptcy. Conversely, if, for instance, Marry had waited an additional month and obtained new and higher paying employment, she may have been able to avoid the bankruptcy process, but had accepted that risk.
    
    
17. Simply put, the practical effects will be different for everyone. We can advise you on what risks may arise and what other practical considerations you should take into account in determining how to approach bankruptcy and your personal financial circumstances. We can also assist in liaising with an insolvency practitioner on your behalf. Send us an enquiry so we can begin assisting you at the earliest convenience.