Bankruptcy is the legal process of liquidating a business or an individual’s assets to pay off the debts that the person or business has accumulated. The debt is called a ‘debt claim’ in bankruptcy. A debt claim is a legal obligation to pay, listed on a personal bankruptcy or corporate bankruptcy statement of affairs. This means that if you have a debt claim, you will be paid first. The rest of the creditors will not be paid anything until your debt claim is paid.A debt claim can be a bank loan, credit card debt or personal loan. It can also be a tax debt or a debt owed to a government department, such as Centrelink.Corporate and personal debt claims need to be listed on the bankruptcy statement of affairs. There are different requirements for each type of bankruptcy.You can read more about the different types of bankruptcies in our Bankruptcy basics.
These are:Bankruptcy – liquidation of your assets to pay off creditorsWhen you file for bankruptcy, your assets will be sold to pay off your debts. You will be bankrupt for at least three years and you can be bankrupt for up to 10 years.Once you have filed for bankruptcy, you’re not allowed to act as a ‘director’ of a company or run any business, unless it is a sole trader business.Personal Bankruptcy – liquidation of your assets to pay off debts and protect some property from creditorsPersonal bankruptcy is similar to corporate bankruptcy in that your assets will be sold off to pay off your debts. However, personal bankruptcies also provide for a repayment plan, making the process less severe than liquidation.
