Making a DOI
When you make a Declaration of Intention or DOI, your debts are suspended for 21 days.
During this “grace period,” you will be able to come up with and implement strategies for repayment.
Additional benefits are that these declarations are not included on the National Personal Insolvency Index (NPII) and do not automatically result in bankruptcy.
This option is not available to everyone, however. It is only viable for individuals who:
- Have not filed a DOI with the Australian Financial Security Authority in the past year.
- Are not currently bankrupt (or waiting on a bankruptcy application to be accepted/rejected).
- Are not currently in a debt agreement.
- Are not in a personal insolvency agreement with certain conditions.
- Do not have any pending bankruptcy applications filed by your creditor/s.
- Are present here or have a residential or business connection to Australia.
The good news is that there is no application or filing fee, and your level of indebtedness does not affect your ability to make a DOI. However, it is important to note that lodging a DOI does not prevent the repossession of your property, and taking this action can provide additional ammunition for creditors trying to force you into bankruptcy.
‘Acts of bankruptcy’
There are also pros and cons associated with entering into debt agreements and personal insolvency agreements.
A debt agreement is an arrangement made between you and your creditors that provides greater flexibility than other mechanisms for the resolution of debt. Specifically, it may allow you to make a lump sum that may be less than you owe, repay the debt in installments, or freeze the debt for a specified period, with repayments beginning when your finances have stabilized.
Your ability to enter into this type of arrangement is subject to approval by most of your creditors, and contingent upon several factors including but not limited to your total income, assets, and debt.
Like a debt agreement, a personal insolvency agreement (PIA) allows you to address debt in a flexible manner based on your circumstances. One of the key differences is that a trustee is appointed to oversee fulfillment of your obligations as set forth in the agreement. To do so, he or she is authorized to sell your assets and collect payments from you or others. Another difference is that you eligibility is not based on your income, assets and debt.
Another consideration is that by law, entering into a debt agreement or PIA is technically an “act of bankruptcy.” As previously noted, this means your creditor/s must approve the arrangement. It also means that the proposed agreement will be included on the NPII, and become a matter of public record. Finally, if your creditor/s do not approve the option, they can still force you into bankruptcy by taking you to court.
Effects of bankruptcy
If, after reviewing all of these options you still feel that bankruptcy is the only solution, you can pursue it by filing a “debtor’s petition” for bankruptcy with the Australian Financial Security Authority. However, as we have already noted, there are some circumstances in which your creditor/s can try to force you into bankruptcy by filing a petition. This usually occurs when you owe them at least $5,000.
In either case, here’s what you can expect after a petition has been lodged and accepted. A trustee will be chosen to take charge of your financial affairs. She or she will have the power to do the following in order to pay creditors:
- Sell any unprotected assets
- Confiscate any income you earn over a specified amount
- Review your financial affairs (and in some situations, retrieve property that you have transferred to someone else before going bankrupt)
Furthermore, there will be a permanent record of your bankruptcy on the NPII, your bankruptcy will be reflected on your credit report for five years, you may not be able to travel overseas without permission and your ability to borrow money or use credit for future purchases may be adversely affected. Finally, bankruptcy may not erase all of your debt.
Because bankruptcy can remain in effect for three to eight years before it is discharged, it is crucial to contact us before doing anything rash. Don’t hesitate to contact us if you are struggling financially and you’ve been advised about potential repossession of your home or other assets, or you need help negotiating with your creditors.