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Bankruptcy

Bankruptcy is the formal process of declaring yourself (or being declared by a court) unable to pay your debts.

For some, bankruptcy is a huge relief, but be aware that it's a very serious step and you should always talk to a financial counsellor before considering it.

Bankruptcy

Bankruptcy is complex and can have serious and far-reaching consequences, so it's important that you have personal, tailored advice before you make any decisions. This page contains only general information.  If you're considering bankruptcy, call us on 1800 007 007 for a discussion about your personal situation.

Essentially, you should only consider bankruptcy once you've exhausted all other options for dealing with your debt. While it may have a positive impact on your life and provide you with a fresh start financially, it can also have significant negative consequences including making it difficult for you to obtain credit, limiting your employability and the loss of your home and other assets.  

 

Eligibility

To be eligible for bankruptcy you must 'have a connection' to Australia. This usually means being an Australian resident or having a place of business in Australia. You can apply to go bankrupt if you have a debt of any amount you can't pay.

 

How to apply

Only apply for bankruptcy if you've already spoken to a financial counsellor to make sure you understand the consequences and are comfortable with your choice. If you've done that, then:

  1. Download a bankruptcy pack from the Australia Financial Securities Authority (AFSA).
  2. Call us on 1800 007 007 if you need help filling out the forms (it's likely!). We can arrange an in-person meeting with a financial counsellor.
  3. Lodge your application (there are many different ways to lodge the forms, including online).

Once you're declared bankrupt, a trustee will be appointed within 2 weeks by AFSA to manage your financial affairs. You may get a private trustee or AFSA may be your trustee.

 

How bankruptcy will affect you

Borrowing money

Your bankruptcy will appear on your credit report for a minimum of five years, and on a public record known as the National Personal Insolvency Index for life. In practical terms, this means you'll find it difficult to borrow money or get credit for five years. Creditors such as mortgage providers can ask if you've ever been bankrupt on their application forms.

Loss of assets

When you apply for voluntary bankruptcy, some of your assets will be safe and some will not.

Assets you'll probably lose include:

  • real estate, such as houses and land
  • cars over a certain value*
  • personal effects such as antiques and luxury electronic items
  • tools of trade over a certain value*
  • artworks of significant value and some jewellery
  • any inheritance, tax refund or winnings
  • money in bank accounts in excess of $1,000 (at the beginning of bankruptcy)


Assets that are safe include:

  • household goods of reasonable value, like furniture, TVs and computers
  • a car worth less than a certain value*
  • tools of trade less than a certain value*
  • in most cases: superannuation, life insurance policies and personal injury compensation payments

* Refer to AFSA's Indexed Amounts for these values.

Income limits

You can earn an income, but if your after-tax income exceeds certain amounts*, you'll have to pay contributions to your trustee for your creditors.

* Refer to AFSA's Indexed Amounts for these values.

Operating a business

During bankruptcy, it's an offence to:

  • trade under a business name that isn't your own full legal name without disclosing your bankruptcy status to every person that you deal with; or
  • be a director of a company or be involved in its management without the permission of the Court.

In certain circumstances, you can operate a business during your bankruptcy as a sole trader. However, there are a number of restrictions and we recommend you speak with a financial counsellor or a private bankruptcy lawyer.

Child support, HECS and fines

You will need to continue to pay your Child support, Centrelink and Higher Education debts, and any court fines.

Professional bodies

Some professional bodies or trade associations have conditions of membership during your bankruptcy. There may be restrictions on holding some statutory positions during this period. Check with your professional body.

Anything else

The Australian Financial Security Authority (AFSA) publishes comprehensive details about the effects of bankruptcy

Know your rights
Forced bankruptcy

Creditors who have tried unsuccessfully to recover debts that total at least $5,000 can force you into bankruptcy. If you're in this situation, call us on 1800 007 007.