Options Available For Individuals to Deal with Tax Debts

The most common options for individuals to deal with tax debts are:

1. Pay the debts in full, possibly via:

   • A lump sum payment.

   • A payment arrangement.

   • Borrowing funds from a third party to us to pay the tax debt.

2. Bankruptcy .
3. A Personal Insolvency Agreement (PIA).

Bankruptcy

1. Bankruptcy is a process available to individuals who cannot pay their debts. The process generally goes for three years and it involves the appointment of a bankruptcy Trustee to manage a person’s bankrupt estate.
2. The three major impacts of bankruptcy are:

   • A person will be released from their provable debts.

   • A person’s assets which are divisible property will be sold.

   • If a person earns over a certain level of income in any year of their bankruptcy they have to pay contributions to their bankruptcy Trustee.

3. Some common assets which will be sold or realised in bankruptcy include:

   • Cash at bank, however, some funds can be left available to a bankrupt to meet expenses.

   • Real property including a main residence.

   • Shares, cryptocurrency and other investments.

   • Inheritances which a person becomes entitled to before or during bankruptcy.

   • Motor vehicles and tools of trade over certain values.

4. Some other impacts of bankruptcy include:

   • You cannot be a director of a company whilst bankrupt.

   • You can trade a business as a sole trader subject to certain restrictions.

   • You can travel overseas, however, you need your bankruptcy Trustee’s consent.

   • Your bankruptcy will be recorded on your creditor report for 5 years after the date of your bankruptcy or 2 years from when your bankruptcy ends.

5. You can file for bankruptcy and appoint a private Trustee such as those at Pearce & Heers or you can appoint the Official Trustee from a Government department known as AFSA.
6. Further information regarding bankruptcy can be found here.

Personal Insolvency Agreements

1. A person who is unable to pay their debts can put forward a proposal to their creditors for a PIA to avoid bankruptcy. A proposal for a PIA is a proposal to source or contribute funds or assets to a fund which is made available and which is ultimately distributed amongst creditors.
2. To put forward a proposal for a PIA a person must appoint a controlling trustee who will:

   • Take control of any assets which a person owns;

   • Review the person’s circumstances and investigate their affairs;

   • Determine whether there would be any return to creditors if the person was made bankrupt.

3. The controlling trustee will issue a report to creditors within approximately one month, which will include (among other matters):

   • Brief details of the person’s financial affairs;

   • A summary of the person’s assets (if any);

   • Details of the person’s creditors;

   • A summary of the estimated returns should the person go bankrupt or if the proposal for a PIA is accepted;

   • A recommendation as to whether or not creditors should accept the proposal for a PIA.

4. The controlling trustee convenes a meeting for creditors to vote on the PIA proposal. For a PIA to be accepted it must be approved by a majority in number and more than 75% of the value of creditors voting at the meeting. If the proposal is accepted it is binding on all creditors and the person making the proposal will avoid bankruptcy. If the proposal for a PIA is not accepted then the person making the proposal does not automatically become bankrupt, however, it is common that they will in the future.
5. To be appointed controlling trustee we may seek that $16,500 be made available for our costs, however, the amount required is very much determined on a case by case basis.

Further information regarding PIAs can be found here.

Further Information and Assistance

If you are seeking advice regarding any of the above matters please contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.

The above information is for general informational purposes only and does not constitute legal or professional advice. If any references above are made to costs or prices these are provided for information purposes only and are not quotes for services.