Nobody can do away with financial difficulties. It does not matter if you are in college or are a professional. How will you be paying your fees or bills otherwise? But debt takes you to face whole other phases of issues.
Debt can get pretty overwhelming if you don’t act on it. If you apply for bankruptcy, this problem can be attended. However, there is a vast difference between approaching insolvency. Australia has set different ground rules for bankruptcy and unique personal insolvency agreement Australia.
These rules need to be adhered to if you want a liquidation register. Australia is crucial about its bankruptcy cases. The fundamental difference between personal and corporate bankruptcy is that individuals apply for personal bankruptcy to prove their inability to pay their debt.
On the contrary, corporate bankruptcies need not fulfill such requirements. But there are more differences between these two major types of insolvencies. Read through this blog to educate yourself about the various points of significant differences between personal and corporate bankruptcy.
Personal Bankruptcy
Personal bankruptcy involves an individual or sole proprietor with debts of more than $1000. In this type of insolvency, the assets and liabilities are entitled personally. So, there is no difference between personal debts or sole proprietorship debts in applying for bankruptcy.
If you wish to apply for bankruptcy voluntarily, you should visit the licensed insolvency trustee (LIT). This will direct all your assets to the Trustee, who will be responsible for handling the repurchases of your acquisitions. This will also bring you the personal insolvency agreement Australia that would check all the requirements and stay of proceedings.
This type of insolvency is legally known as Chapter 7 bankruptcy or Chapter 13 bankruptcy. The proper definition suggests that Chapter 7 bankruptcy is for people with limited income resulting in bankruptcy discharge of potential debt.
Chapter 13 bankruptcy is for individuals with income and improper management of their debts due to the absence of a payment plan. This chapter aims to assist the ones who need help to improve their financial condition resulting from bankruptcy or struggle to pay debts. However, these individuals aren’t totally in the condition of destitution.
Corporate Bankruptcy
As the name suggests, corporate bankruptcy involves the incorporated entities that are unable to pay their debts or apply for bankruptcy. Under the Bankruptcy and Insolvency Act, a corporation is entitled as a legal person.
These debts contain unpaid source deductions, outstanding HST, loan leases, etc. businesses can apply for bankruptcy under Chapter 7. This would result in the dissolution of the entity and not in reorganization.
On the contrary, Chapter 11 bankruptcy is meant for businesses when reorganizing or liquidating their assets to repay their debt. Mostly filing bankruptcy against Chapter 11 results in the reorganization of a corporate entity.
Debtors can offer their reorganization plans as well. But after a significant period, creditors can propose reorganization plans as well.
Although individuals can file under Chapter 11, it is more complicated, and therefore, people often file for Chapter 7 or 13 bankruptcy.
Additional Points of Difference Between Personal and Corporate Insolvency
While distinguishing between personal and corporate insolvency, the main question is answering the question, “What is the difference between Chapter 7 and Chapter 11 Bankruptcy?” Although you’ve come across the essential points of difference between the two previously, here are the additional points of difference between personal and corporate insolvency.
- A Chapter 11 filing enables the debtors unqualified under Chapter 7 or 13 filing to still file for bankruptcy.
- Chapter 11 is meant for individual debtors only.
- No trustee is appointed during a Chapter 11 bankruptcy filing. The entity or person also does not remain in control of their assets.
- Chapter 11 requires to propose or approve a plan in Chapter 11. The creditors need to drop their votes for this purpose.
- A plan of reorganization is involved in Chapter 11. It also includes the basic legal requirements for the provisions needed to make. However, it permits substantial flexibility to restructure debt as per the case.
- Chapter 11 is much costlier than Chapter 7.
Final Words
If you are on the way to filing a personal or business insolvency in Australia, it is vital to go through the rules and regulations of the country before filing one. Although some of the application processes may be the same, they are not entirely the same, and there are significant differences between them.
It is essential to ensure that you file under the most appropriate chapter for an individual and sole proprietorship or corporation or business.
While Chapter 11 is far more complex than Chapter 7 and costlier, it is the best option for individuals and businesses if you wish to restructure your debt. It is a beneficial way to deal with your debts. The final call is in your hands!