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29 Jun 2012

How Long is the Bankruptcy Shadow?


3 min

Turn on any TV channel during the day and an overwhelming sense of gloom ensues from all the adverts about debt relief, consolidation and income protection insurance. Yet despite these alternative solutions bankruptcy may be the only viable option for what is for some people, a desperate situation.

Bankruptcy is a legal process where a trustee is appointed to administer an insolvent person's affairs in order to provide a fair distribution of that person's assets to their creditors. It is a legitimate and just way for a debtor to solve their debt problems, and is one way for creditors to take action against someone for unpaid debts.

The debtor is protected from being pursued by their creditors and, with limited exceptions, is released from their debts at the end of the bankruptcy. Bankruptcy is not about punishing debtors it is about providing them with the opportunity to make a fresh start.

A very large difficulty facing bankrupts hoping (and expecting) to make a fresh start is that a public record of their bankruptcy is kept indefinitely.

Bankruptcy information is publicly available (for a fee) and is obtainable from the Insolvency and Trustee Service Australia (ITSA). The public record is a permanent electronic register of personal insolvency proceedings and is known as the ‘National Personal Insolvency Index (NPII)’. It contains exhaustive records dating back to 1928.

The Bankruptcy Act of 1966 has seen various amendments in an effort to improve the legislation and its application. Conceivably the policy of bankruptcy being ‘on the public record’ forever should be brought into line with current day standards. Why should bankruptcy become the dark shadow that can never be evaded?

By comparison if your account falls into arrears with a credit provider that fact is recordable by the credit agencies and remains on record for only five years from the date of listing, in accordance with government and social policy. Potentially such accounts could total the same as some bankruptcy estates.

A life time recording of a bankruptcy seems to be a name and shame exercise without end. Any person with any number of motives, willing to conduct a search, can find this information and potentially use it against ex-bankrupts. The ex-bankrupt never truly gets a fresh start.

One could argue that bankruptcy history should only be on the record for the three years during which the bankrupt is undischarged as that would be in fact be conducive to a fresh start in life.

In a subsequent article we will look at why it may no longer be appropriate to use the term “bankrupt”.....

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