Dealing with debt

Before paying any debt, it is worth askiing a few questions. In some circumstances, you can challenge whether the debt is actually owed.

Is the debt too old?

Is the amount correct? (Perhaps it should be less.)

Is the debt in the right name?

Was the lending "responsible" as defined by consumer protection laws?

There is a time limit for the recovery of debts.  If you receive a demand for payment of an old debt, you should check to see if it may be “statute barred”, which means that the creditor has waited too long to recover the debt and won’t be allowed to do so now.

A debt might be statute barred if:

• You haven’t made a payment for at least 6 years, and
• In the last 6 years, you haven’t admitted in writing that you owe the debt, and
• No court judgment has been entered against you.

The creditor has longer to recover debts if:

• It arises from a deed rather than an ordinary contract (a mortgage is usually a deed); or
• There is a judgment against you.

If you think it might be more than six years since you last made a payment on the debt, or acknowledged the debt in writing and you are not aware that any court judgment has been made against you:

• Don’t make a repayment;
• Don’t agree that you owe the debt;
• Do get advice immediately from a financial counsellor or lawyer; and
• Do ask the debt collector or lender to provide copies of the loan contract and the account statements, and any judgment if they say that there is a judgment against you. (See the fact sheet on this page "Debt - getting information.)

If you are being sued for an old debt

The fact that a debt is statute barred gives you a defence if you are being sued in court, but it is up to you to raise the defence.  This means you will have to file documents in court.  You should get legal advice about this.

If you accept that you owe the debt but disagree with (or are unsure about) the amount claimed, you can ask for information about the debt. In particular you should ask for a statement of your account that sets out:

• The amount and date of the alleged debt
• How it is calculated
• Details of all payments made and all amounts owing (including principal, interest, fees and charges)

Read the statement carefully. It might include recovery fees or expenses charged by the creditor or debt collector.  Check your original contract to see whether you have to pay these fees. Talk to a financial counsellor or get legal advice if you think the fees or charges are unfair.

A debt collector should stop collection activity until your request for information has been met, and the debt has been confirmed. A default listing on your credit report should not be made during this period.

If you are contacted about a debt that you have already paid in full, explain the situation in writing and include copies of any records or information you have that prove the debt has been settled.

For more information about your rights when dealing with debt collectors see the fact sheet on this page.

When you receive a demand for payment of a debt, you need to make sure the debt is yours, before you agree to make any payments.

Debt and relationships

You are not automatically responsible for another person’s debts, just because of a relationship with that person.

• Parents are not responsible for children’s debts and vice versa
• You are not responsible for your partner’s debts just because of your relationship, whether you are married or not.

However, you may have become liable for a debt because you signed a loan contract as a joint borrower or guarantor, or because you were a director of a family company or a partner in a business.

When you have a joint debt, each of you is responsible for the whole debt.   This means that if the other person doesn’t make payments, the creditor can look to you for payment of the whole debt.  As far as the creditor is concerned, it doesn’t matter what arrangement you had with the other person about how much each of you would pay.  If payments are behind, the creditor can demand payment from you for the whole of the debt plus any fees, interest or charges because of non-payment.

This still applies even if your relationship with the other person has ended.  In most cases you will not be able to get out of loan contracts you have made in the past, but you should get legal advice about this.

Guarantees

If you have been a guarantor for some one else’s loan, and they have defaulted on payment, the creditor will seek payment from you.  If the guarantee is secured over your house, the creditor can repossess your house.  There are some very limited circumstances in which a guarantee can be challenged. You should get legal advice if:

• You agreed to be a co-borrower or guarantor under pressure or through fear
• You did not understand the nature or extent of the commitment you were making.

Mistaken identity

Just because a debt collector tells you that you should pay a debt doesn’t mean that you owe the money.  Many debt collection agencies buy computer-based information about debts. Sometimes the original creditor will have incomplete information on its computer and will mistakenly sell a debt that has previously been paid or settled. Sometimes debt collectors even demand money from the wrong person. Carefully check your records (contracts, statements, receipts etc) before you agree to pay any money.

In cases of mistaken identity, showing your driver’s licence or other ID may resolve the situation. However, the decision to show ID is yours – you cannot be forced to do so by a debt collector. If you think someone is using your personal details to run up a debt in your name, contact your credit provider immediately.  See the MoneySmart website for more information.

Consumer protection laws impose “responsible lending” obligations on lenders and finance brokers.  This means that they are required to

• Make reasonable inquiries about your financial situation and your requirements and objectives;
• Take reasonable steps to verify your financial situation; and
• Make an assessment that the credit contract is ‘not unsuitable’ for you.

A credit contract is unsuitable for you if:

• You are not able to meet the repayments, or can only meet the repayments with substantial hardship, or
• It does not meet your requirements and objectives

You can obtain a copy of the lender’s assessment about the suitability of the credit.   If you think you may have received credit that is unsuitable to you, you should get legal advice.

Other common defences to debts are:

• The debt is old and statute barred – that is, the debt is outside the time provided by the law to sue for the debt (see above).
• You were misled or deceived about what you were signing or getting when you first entered the contract
• The circumstances surrounding the debt are unjust or unconscionable.
• You are entitled to a hardship variation or arrangement under one of the various hardship schemes.
• The contract you signed contained unfair contract terms that affect the amount you have to pay. For example, a mobile phone contract might contain an unfair cancellation penalty.

There are many laws protecting consumers. Seek legal advice so that you understand all your rights.

**Caution**

Before signing a Debt Agreement (Part IX Agreement) it is important to talk to a financial counsellor to ensure that it will not leave you worse off.  Many Debt Agreement administrators aggressively promote their services.  Some charge very high fees for services that you may not need and may work to your disadvantage.  It is essential you have a full and complete understanding of the consequences of the Debt Agreement. There may be other available options for dealing with your debt.

If you are not currently in the position to pay your debts and want to avoid becoming bankrupt, you can submit a Part IX Debt Agreement proposal for your creditors to consider. If your creditors accept your proposal and you enter a Debt Agreement, you will avoid becoming a bankrupt. (The reference to Part IX is to the applicable part of the Bankruptcy Act.)

However, the fact of your Debt Agreement will appear on your credit report for seven years and on a public record known as the National Personal Insolvency Index for life.  Making an application for a Debt Agreement is an act of bankruptcy, which means your creditors can apply to bankrupt you if they do not accept the proposal.

You will usually have to pay an upfront fee to a Debt Agreement administrator to enter a Debt Agreement plus a monthly administration fee throughout the period of the Debt Agreement.

The most common reason to choose a debt agreement instead of bankruptcy is that a debt agreement can offer a means to protect your home, if your creditors are willing to accept the repayment agreement.  You may also be less likely to be excluded from certain employment.

To be eligible you must:

• Not have been bankrupt or had a Debt Agreement in the last 10 years; and
• Have unsecured debts of less than $97,679.40 *(indexed); and
• Have non-exempt assets valued at less than $97,679.40* (indexed); and
• Expect that your after-tax income for the next 12 months will be less than  $73,259.55*

*Values are as at 20 September 2012. These amounts are updated every 6 months.  Click here to see if these amounts have changed.

The details of any Debt Agreement depend on your circumstances and the attitude of your creditors.  The agreement may require that you do any of the following:

• Make payments from your income for an agreed period of time (most common arrangement); or
• Pay an agreed periodic payment to your creditors; or
• Make a one-off lump sum payment in full and final settlement for your debts; or
• Sell your assets and pay all proceeds to your creditors; or
• Ask your creditors for a temporary stop on payments you owe them for a specified time.

Operating a business

You will be able to operate a business unless the terms of the agreement provide otherwise.  If you trade under a business name or an assumed name, you will be required to disclose the Debt Agreement to every person that you deal with.

Director of a company

There are no restrictions on being the director of, or otherwise managing a company.

Other employment restrictions

Professional bodies and/or trade associations have certain conditions of membership for the duration of the agreement.  There may be restrictions on holding some statutory positions during the period of the agreemen

For more information on Debt Agreements, go to the ITSA website.

A claim for damages is different to other kinds of debt – someone claims that you have caused damage and requires you to pay the cost to compensate them for the damage.  Most often this arises from a car accident.  If you were not insured, the other party or their insurance company may claim against you for damage to the other car.

If you have received a demand for payment for damages there are two issues to consider.

• Do you accept responsibility for the damage?
• Is the amount claimed reasonable?

If you are not sure whether you are responsible, you should get legal advice immediately.

If you accept that you are responsible, then you still need to be satisfied that the amount claimed is reasonable.  For a car accident, you should ask for copies of repair invoices to show the detail of the amount that is being claimed against you.

If you accept liability for the accident and you are not insured, depending on your circumstances you can either:

• If you can access a lump sum, offer it as full and final payment of the debt, even if it is less than the insurance company is demanding; or
• Ask the insurance company for an affordable payment plan; or
• Request a waiver of the debt.

Insurance companies that have signed the General Insurance Code of Practice are obliged to act fairly and in a considerate manner towards you, and to consider flexible payment arrangements if you are experiencing financial difficulty.

If you haven’t paid your bills or debts soon after the due date, your creditor will probably send you formal notices or letters requesting prompt payment.  Sometimes debts are sold to debt collectors who do the collecting.  Debt collection is legal, but bullying and harassment when collecting debts is not. If someone trying to recover a debt intimidates you, there are things you can do to stop their threatening behaviour.

A letter of demand comes from your creditor or debt collector and usually warns that if you don’t pay the debt within a certain time period (often 7 days) they will sue you in court.  Letters of demand are not court documents.  Letters of demand are often the last letters a creditor will send you before suing you.

You have a right to dispute a debt if you think it is not yours.

You have a right to ask for more information about the debt.

Even if you accept that you owe the debt, you can query whether the amount is correct.

There are other grounds for disputing a debt if it is too old to be collected or because of rights you have under consumer protection laws.

You can also talk to a financial counsellor or get legal advice if you believe the debt is not payable.

(See the Fact Sheet "Challenging a Debt" on this page also.)

If a debt collector contacts you about a debt that you have already paid in full, explain the situation in writing and include copies of any records or information you have that prove the debt has been settled.

If you continue to have a dispute, contact the Financial Ombudsman Service, the independent complaint-handling body.

State and territory consumer protection laws determine what debt collectors can and can’t do. Generally, debt collectors should only contact you when they are:

• Making a demand for payment
• Making arrangements for repayment
• Finding out why an agreed repayment plan has not been met
• Reviewing a repayment plan after an agreed period of time
• Inspecting or recovering mortgaged goods (if they have a right to do so)

They are only allowed to phone or meet you face-to-face between 7:30am and 9pm on weekdays, and 9am to 9pm on weekends.

Debt collectors can only visit your home (or another agreed location) if there is no other way to make contact with you. If repayment arrangements can be worked out over the phone or by letter, there is no need for them to visit you in person.

Debt collectors should not:

• Act in a way that is misleading or deceptive
• Harass or force you into paying
• Go to your workplace unless you ask them
• Reveal information about your financial situation to others
• Contact you by email, phone or letter more than three times a week
• Contact you on national public holidays

The most effective way of stopping unfair or illegal debt collection activities is to send a written complaint to the Financial Ombudsman Service. You may also seek talk to financial counsellor or get legal advice as you may have other options available to you, such as taking legal action.

You may also lodge a complaint against the debt collector with the Australian Securities and Investment Commission or the Australian Competition and Consumer Commission. Send a copy of your correspondence to the debt collector and keep a copy for your own files.

You have the right to ask for more information about any debt you are being asked to pay.  For loans covered by the consumer credit law, these rights are quite specific. If the credit law does not cover your loan, you still have rights under the privacy law to get more information.

You have the right to request the following documents from your lender.

Copies of:

• Any loan contract
• Any credit related insurance contracts in the credit provider’s possession. For example, consumer credit insurance;
• A copy of any notices previously given to you, for example, a default notice

And a statement of the following:

• Current balance of your loan account(s)
• Any amounts credited or debited during the term of your loan contract(s)
• Any amounts currently overdue and when they became overdue
• Any amount currently payable and the date that it became due
• A loan payout figure with details of the items that make up the amount, for example, interest and fees.

Lenders and Finance brokers are required to make a suitability assessment before giving you credit or increasing your credit limit. You can request a copy of the credit assessment either before the credit contract is entered, or up until 7 years after the date of the credit contract. If you are considering challenging a loan as either unjust or unsuitable (link to 3.9), you should request a copy of the assessment.

You do not have to:

• Explain why you do not have the documents
• Explain why you want the documents
• Obtain the consent of any joint borrower.

There are different time limits for different documents.

Copies of contracts and notices

14 days from the date of the request if the loan was given less than 1 year ago or within 30 days from the date of the request if the loan was given more than a year ago.

Statement of account

14 days from the date of the request if the loan was given less than 1 year ago or within 30 days from the date of the request if the loan was given more than a year ago.

Payout figure

The credit provider has 7 days after the request for the payout figure is given to the credit provider.

You should make your request in writing, setting out the documents and information you want.  Keep a copy of the letter you send.  Click here for a sample letter you can use.

The privacy law gives you the right to get copies of information contained in you “personal file” held by a business.  If you make a request under privacy laws:

• The business can charge you a reasonable fee for retrieving, copying and sending you the information
• The information must be provided within a reasonable time.

If you cannot get a copy of your personal file you can complain to the Federal Privacy Commissioner .

Some debts may be more important than others. Your approach for tackling your debts will depend on many things including:

• Your age
• Actual or possible changes to your working hours or income
• How long you’ll have limited income
• The value of assets you could lose if the debt isn’t paid
• The attitude of your creditors and the rights you have to seek hardship variations for the debts
• Whether the debt is secured over an asset
• The amount of the debt and the interest rate applying to the debt

When you have limited income you soon realise the consequences of not paying some debts are more serious than for others.  The size of the debt and the amount of emotion and need attached to a possession (like the roof over your head or your car to take your kids to school) are certainly factors in helping you decide the relative priority of your debts. But so too are the specific options available for these debts and the legal consequences of not paying, when you have a reduced income.

Some debts are more important than others. As you work out how to prioritise your debts you need to make sure that paying certain bills won’t mean you end up defaulting on others that may have serious legal consequences for you.

Once your have prioritised your debts, you can work out a debt management plan.

The sooner you take action to deal with your debts the more options you have.  Consumer legislation and government support schemes and grants have been established to assist you to manage your debts.  By understanding your debts and your payment options and the legal consequences of not paying, you’ll be able to prioritise which debts you pay first. If you at least pay something towards your outstanding debts, your creditors may delay action against you and give you the opportunity to deal with the debt.

The options available to you might include:

• Making informal arrangements during a period of temporary financial hardship, whereby you agree with your creditor to adjust repayments in the short-term only (See "Informal Arrangements" on this page for more information.)
• Applying for a hardship variation for your repayments through the hardship programs of banks, utility companies, telcos  to either: reduce repayments, defer payments, extend the term of your loan or  a combination of these.
• Lodging a dispute with an independent complaint handling body, such as the Financial Ombudsman Service or the Credit Ombudsman  if your lender does not agree to a formal or informal hardship variation. (See Fact Sheet on "Disputes" under Legal Action.)

Talking to a financial counsellor can help you to prioritise your debts.  If you have multiple debts, financial counselling can be especially helpful.

You cannot be sent to jail for not paying ordinary debts.

But, if you’re struggling with debts, the worst thing you can do is ignore the problem and hope it will go away. You may be embarrassed, fearful, or even too proud to ask for help and advice. Don’t let your emotions stop you from tackling your debt. Steps you take now to achieve a more stable financial position will make a big difference.

If you do nothing, your creditor will likely continue with action to recover the debt against you.  The further this proceeds, the fewer options you have.

The options your creditor has are:

• List a default on your credit report once your debt is more than 60 days overdue.
• Repossess of any property that is security for a loan.  If a loan is secured over your house or a car the creditor can repossess them after giving you the correct legal notices.
• Sue you in court or a tribunal and, once they obtain a judgment for the debt, enforce that judgment by
• Forcing a sale of your house to pay the debt.
• Taking other property you have to be sold to pay the debt
• Taking money from your earnings or bank account to pay the debt
• Making you go to court to answer questions about your financial situation
• Making you bankrupt.

The more steps your creditor takes to recover the debt, the more costs will be added to the debt.

If you have no property of any value, and your income is too low to be redirected to pay the debt (for example if you are on Centrelink) then you are regarded as “judgment proof” because a creditor cannot recover any money from you without your co-operation.

However, you need to keep in mind that the creditor has 6 years to sue you for most debts (and 12 years if the debt is based on a deed).  The creditor also has many years to enforce any court judgment obtained against you (in most parts of Australia this is between 12 and 15 years). You may accumulate income or property at some time in this period. If this is the case, you will have to pay the debt plus costs and interest, which after many years may be a large sum of money.

If you are judgment proof, you can write to your creditor asking them to waive the debt.  You can talk to a financial counsellor for help with this.

The law imposes limits on the contact a creditor or debt collector can have with you. (See "Challenging a Debt" on this page.)

If you are experiencing financial difficulty you can ask your lender for a hardship variation. Consumer credit legislation in Australia allows for variations to the terms and conditions for loan contracts taken out for personal, household, or domestic purposes.

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You can ask for any type of variation that will help you get back on track. For example:

postponing or deferring payments;

extending the term of the loan and reducing the repayments;

adding any arrears to the loan balance;

interest only payments for a period;

a loan restructure;

some other variation (perhaps a combination of things).

The particular variation you ask for will depend on which is the most affordable for you.

But remember, the lender does not have to agree to your request

IYou can ask for a variation in writing or by phone. However, it is usually   better to put your request in writing as this means you can keep a copy of the request as a record. It is more difficult to prove the details of a request made by phone.

Some lenders have online application forms which can make it easy. Every bank has a link to information about what to do if you’re in financial difficulty on the home page of their websites.

You can also use the sample letter on the Letter Templates page of this website.

The banks have also set up a website that includes bank contact numbers and information about hardship - www.doingittough.info

Your lender must respond to you within 21 days of your application. The lender may also request further information from you before they make a decision. For example, they might ask you for a statement of financial position or payslip. You have 21 days to respond to the lender’s request.

A lender cannot take any action to enforce the debt while they are considering your application for a hardship variation.

The lender will base their decision on whether the variation will mean that you can eventually get back on track.

If your lender either refuses your request or fails to respond to you within 21 days, you can lodge a complaint with your credit provider’s External Dispute Resolution Scheme. (See “Disputes” on the Legal Action page.)

Before asking for a hardship variation work out how much you can afford to pay in your current circumstances. Don’t offer more than you can afford.

If you offer to pay more than you can afford, you will not be able to stick to the agreement. Then you will have to ask for a new payment plan. Your creditor will be less likely to agree if you have not been able to keep up on one payment plan already.

It is a good idea to prioritise your debts according to their importance. You will then be able to draw up a debt management plan and know how much you can realistically afford to pay off each of your debts. Remember to retain some money for emergencies.

A financial counsellor can help work out with you how much you can afford to pay and which debts are priorities.

If your lender or debt collector agrees to a variation, you will obtain the following benefits:

• Your payments will become more affordable in the short-term
• Letters of demand and phone calls from your creditor or their debt collector requesting payment will stop for as long as you keep to the arrangement
• Your lender will not usually notify any default on your credit report  if you have contacted them early and set up a payment plan. This will mean the debt will not be reflected in your credit rating and you will not be disadvantaged when you apply for credit in the future.

If your lender agrees to a variation, you will have to consider the following disadvantages:

• Unless you have negotiated a stop on interest a changed payment plan may turn out to be very expensive in the long-term and may mean you go further into debt;
• Where the arrangement consists of reduced monthly payments and a longer loan term, you will be effectively paying interest for longer for the same loan amount. The overall cost of the loan will therefore be higher.

In general terms, you are considered to be in financial hardship if you want to pay your bills but have insufficient money to do so.

If you are having difficulty paying your gas, electricity or water bills, you should contact your utility company and ask for flexible payments and details of any other assistance programs to make payment more affordable for your current circumstances.  Most companies have ‘hardship’ officers who can work out a plan so you can pay the bill in installments. Don’t use your credit card to pay off your utility bills as this will only add to your debt.  (See the fact sheet on Utility Bills on the Everyday Money page also.)

Phone and internet service providers are required to have processes in place to assist people experiencing financial hardship. Most will allow extra time to pay your account if you let them know about your changed circumstances.  You should contact them and ask for assistance to manage your phone expenses. They will usually offer to customise your service so you can only access those phone service options you can afford.

You may be able to negotiate hardship payment arrangements with other companies, such as insurance providers and local councils. If you have household bills and debts that you cannot pay, you should never ignore them and hope they’ll sort themselves out. They won’t.

Notify these creditors about your financial difficulty as soon as you know you can’t afford to pay and ask for an affordable payment option in your circumstances. But be aware that they have a right to sue you for payment.

The first and simplest remedy when you’re in debt is to get in touch with the person or organisation you owe money to (your creditor), explain your changed circumstances and negotiate an arrangement to pay.

If you can’t make a full payment in the short term, it may be better to pay what you can rather than nothing at all. Then you’ll be reducing your debt and the amount of any interest due as well as demonstrating good faith.

If your trouble with meeting your payment goes beyond a single payment, you need to contact your creditor and discuss an arrangement to pay. Be sure to be specific about how, when and over what period you’ll make payments. Creditors will often work with you as long as your offer is reasonable, you keep up with agreed payments, and you keep in touch with them.

Be realistic when you offer to make a part-payment on your debt.  Prioritise your debts and use budget to work out how much you can afford.  Keep a little on hand for emergencies, and don’t take on debt that you simply cannot afford to pay back.

Keep a record of all phone calls and copies of all correspondence you have with your lender or creditor regarding agreements for the payment of your debt.

You may propose an informal debt payment arrangement to your creditor based on the following options:

• Request extra time to pay if you believe your change of circumstances is only shortterm.
• Make a reduced payment if you cannot make a full payment but want to demonstrate your intention to pay what you can. If your circumstances are ongoing, you might need to enter a formal agreement for ongoing reduced payments, but your creditor may accept a reduced payment for a short period.
• Negotiate a waiver for the interest on the debt if you cannot make the original payments, though most creditors are unlikely to accept this.
• Make a debt reduction offer. That is, offer what you can as full and final settlement of the debt despite it being less than the amount owed. Some creditors will accept an offer like this to clear the debt.
• Ask for a waiver for the debt if you won’t be in a position to pay the debt for some time. Your creditor may refuse this suggestion but it’s still worth trying to have the debt written off this way.

After paying your priority debts you may find yourself with very little money to pay your other creditors. If you’re in this position you should inform your creditors and ask them to wait until your circumstances improve for payment. You need to be aware that they may commence court action against you.

You could offer a token payment of a few dollars per month, or pay them a reduced amount compared to all of your debt. Don’t worry if your offer looks very small. Your creditors would rather you pay a small amount regularly than make promises you can’t keep.

Paying all your debts individually can become very complicated. Talk to a financial counsellor if you need help working out how much you can afford to pay each of your creditors, and ideas about how to simplify debt payments.

Bankruptcy is a legal process that releases a person from their debts. You can apply to become bankrupt voluntarily if you have a debt of any amount you cannot pay.

When you become a voluntary bankrupt, a trustee appointed by the Insolvency Trustee Service of Australia (ITSA) will manage your financial affairs. A fee may be charged depending on your income level.  ITSA will advise you of when you are officially bankrupt. They will nominate a trustee to manage your financial affairs within two weeks of when you lodge your application with them. Bankruptcy lasts for three years from the day it is declared.

Alternatively, creditors who have tried unsuccessfully to recover debts you owe that together total at least $5,000 can force you into bankruptcy. In this situation, a private trustee will manage your financial affairs and may charge high fees for this service.

Bankruptcy is a very serious step and you should talk to a financial counsellor before considering this step.

The financial consequences of bankruptcy may affect you immediately and into the future, however it can also offer you a fresh start. Depending on your circumstances, bankruptcy may:

• Have little impact on your life and provide you with a fresh start financially, or
• Have significant consequences including making it difficult for you to obtain credit for a considerable time, limiting your future employment options, the loss of your home (if you own or are buying it) and the loss of any other significant assets.

You must consider all of the advantages and disadvantages of bankruptcy if you are thinking about this option to deal with debts you cannot pay — even those advantages and disadvantages that do not currently apply to you.

When you become bankrupt:

• You can keep household goods and personal effects like a television, computer and furniture of reasonable value; and
• The fact of your bankruptcy will appear on your credit report for seven years and on a public record known as the National Personal Insolvency Index for life; and
• You may lose some of your assets (see next section) including your house (If you own it or are buying it)  and a car worth more than $7,200; and
• You can earn an income however if your after-tax income exceeds a certain amount you will have to pay contributions to your trustee; and
• You must continue to pay your Child Support, Centrelink and Higher Education debts, and any fines; and
• A claim for damages is not included in the bankruptcy unless you have made an agreement to pay or have a judgment against you.

However, you need to keep in mind that the creditor has 6 years to sue you for most debts (and 12 years if the debt is based on a deed).  The creditor also has many years to enforce any court judgment obtained against you (in most parts of Australia this is between 12 and 15 years).

The law imposes limits on the contact a creditor or debt collector can have with you.

Assets that are safe*

• Household goods of reasonable value, like furniture, a television and a computer
• A car in which you have less than $7,200* equity
• Tools of trade to the value of $3,550*
• Up to $2,000 in bank accounts (deemed to be for living expenses)
• Superannuation, life insurance policies and personal injury compensation payments

Assets you will probably lose*

• Real estate, such as houses and land
• Cars in which you have more than $7,200* equity
• Personal effects such as antiques and luxury electronic items
• Tools of trade over the value of $3,550*
• Artworks of significant value and some jewellery
• Any inheritance, tax refund or winnings
• Money in bank accounts in excess of $2,000

* Values are as at 20 September 2012.  These amounts are updated every 6 months. Click here to see if these amounts have changed.

Operating a business

In certain circumstances you can operate a business during your bankruptcy. If you do not trade under your own name,  you will be required to disclose your bankruptcy status to every person that you deal with. Failure to do so is an offence under the Bankruptcy Act. You cannot be a director of a company or be involved in its management without the permission of the Court, and to do so is an offence under the Corporations Act. (this para from ITSA)

Other employment restrictions

Professional bodies and/or trade associations have certain conditions of membership for the duration of the agreement.  There may be restrictions on holding some statutory positions during the period of the agreement.

For more information on Bankruptcy, go to the ITSA website.