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Bankruptcy information

Bankruptcy: what it means and how it compares.

Bankruptcy is a formal legal process that can release you from most unsecured debts. It also has serious, long-lasting consequences, and it’s usually a last resort. We explain how it works and compare it with the other options. We aren’t a trustee and don’t administer bankruptcies.
Answer 9 quick questionsCall 1300 351 008
Fee-based service. Fees are explained before you decide anything.
Good to know before you decide
It usually lasts 3 years and 1 day, and it can be extended
Your trustee can sell some assets, including a house
You may have to make payments if your income is above a set amount
Your name stays on the National Personal Insolvency Index permanently
Travelling overseas needs your trustee’s written permission

All the consequences →

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The basics

What is bankruptcy?

Bankruptcy is a legal process where you’re declared unable to pay your debts. It’s one of the formal options under the Bankruptcy Act 1966, along with debt agreements and personal insolvency agreements.

When you become bankrupt, a trustee is appointed to manage your bankruptcy. That’s either the Official Trustee (AFSA) or a registered trustee who agrees to act. Your trustee tells your creditors you’re bankrupt, which prevents most of them from contacting you about those debts. When the bankruptcy ends, you’re released from most unsecured debts.

Debt Negotiators isn’t a trustee. We explain how bankruptcy would affect you and how it compares with the other options.

How bankruptcy starts
You apply yourself (voluntary bankruptcy) by lodging a Debtor’s Petition and Statement of Affairs with AFSA
Or a creditor you owe $10,000 or more applies to the court to make you bankrupt
To apply, you must be unable to pay your debts when they’re due, and be in Australia or have a residential or business connection here
There’s no minimum debt and no fee to apply. Trustees do charge fees, generally paid from the bankrupt estate.
Honest answer

Is bankruptcy the right option?

It depends entirely on your situation. Here’s when it’s sometimes considered, and when it usually isn’t.
It’s sometimes considered when
You can’t pay your debts when they’re due, and there’s no realistic way to repay them over time
Most of what you owe is unsecured, such as credit cards and personal loans
You have few assets above the amounts you’re allowed to keep
You’ve looked at the other options and none of them fits
It’s usually not the right fit when
You own a home or other assets you want to keep
You could repay an affordable amount through an arrangement or a debt agreement
Your work depends on a licence or membership that bankruptcy affects
You’re a company director, or need to travel overseas often
Your main debts are ones bankruptcy doesn’t cover, such as child support or HECS-HELP

See the alternatives →

Your debts

Which debts does bankruptcy cover?

Bankruptcy covers most unsecured debts, but not all of them. Secured debts work differently.
Usually covered
Credit and store cards
Unsecured personal loans and payday loans
Gas, electricity, phone and internet bills
Overdrawn bank accounts and unpaid rent
Medical, legal and accounting fees
Good to know: some Centrelink and tax debts depend on the type of debt, so they need checking.
Not covered
Child support and maintenance
HECS-HELP and other government student loans
Court-imposed penalties and fines
Debts you take on after the bankruptcy starts
Good to know: with a secured debt, such as a home or car loan, the lender can still take the asset if repayments stop. On a joint debt, the other person normally becomes liable for the full amount.
The consequences

What bankruptcy means for you

The main effects, based on what AFSA publishes. How each applies depends on your situation.

How long it lasts
Usually 3 years and 1 day from when AFSA accepts your application. If a creditor made you bankrupt, it runs from when your Statement of Affairs is accepted. Your trustee can object to your discharge, which can extend it to as long as 8 years.

Your assets
Your trustee can claim and sell assets, including a house or other property. You can usually keep ordinary household goods, and tools and vehicles up to set amounts.

Your income
There’s no limit on what you can earn. If your after-tax income is above a set amount, you pay half of the amount above it to your trustee. The amount depends on how many dependants you have and is indexed twice a year.

Credit file and public record
Credit reporting agencies keep a record for 5 years from when you became bankrupt, or 2 years after it ends, whichever is later. Your name appears permanently on the National Personal Insolvency Index, a public register.

Overseas travel
You need your trustee’s written permission to travel overseas during bankruptcy. Travelling without it is an offence.

Work and business
You can’t be a company director or manage a company without the court’s permission. Some licences and professions have their own rules, and sole traders have extra obligations.
How we help

How it works with Debt Negotiators

1

Answer 9 quick questions
About a minute. Roughly what you owe, who to, and what comes in each week. Start here.
2

We look at the whole picture
Your debts, income, assets and work, so we can explain how bankruptcy would affect you in particular.
3

You compare the options, then decide
We set bankruptcy side by side with informal arrangements, debt agreements and personal insolvency agreements, with the downsides of each.
What we do and don’t do

We give you information about bankruptcy and how it compares. If you decide bankruptcy is right for you, the application is made to AFSA, and a trustee, not Debt Negotiators, manages the bankruptcy.

If one of the other options fits better, we can go through what it involves and, where it’s one of our services, help you with it.

Referrals and payments: We work with a panel of registered trustees. If we refer you to one, we may receive a referral payment, and we may charge fees for pre-insolvency work. We’ll tell you about any payment or fee before you decide.

What it costs: Debt Negotiators is a fee-based service. Fees are explained before you decide, and the first conversation costs nothing.

Before bankruptcy

Alternatives to bankruptcy

Bankruptcy is one of several options. Each of these has its own downsides, and we’ll go through them with you.

Informal arrangements
New repayment terms negotiated with each creditor, based on what you can realistically pay.
Good to know: creditors don’t have to agree, interest may keep running, and it may show on your credit report.

Learn more →

Debt agreements (Part IX)
A formal, binding agreement with your creditors to repay an affordable amount over time.
Good to know: it’s a formal insolvency option and an act of bankruptcy. Income, debt and asset limits apply, and it’s listed on your credit report and the National Personal Insolvency Index.

Learn more →

Personal insolvency agreements
A formal agreement for higher debts or incomes, administered by a registered trustee.
Good to know: it’s listed on the National Personal Insolvency Index permanently, and you can’t manage a company until its terms are finalised.

Learn more →

Debt consolidation
One new loan pays out several debts, so there’s a single repayment.
Good to know: lending criteria apply, and a longer term can mean paying more interest overall.

Learn more →

Business & ATO debt
For sole traders and directors with ATO debt, including director penalty notices.
Good to know: business debt has its own short check, built for directors and sole traders.

Learn more →

Compare every option
All of our debt solutions on one page, with a side-by-side comparison.
Good to know: every option has trade-offs, and some aren’t open to everyone.

Learn more →

Bankruptcy questions

Who can apply for bankruptcy?

You can apply if you can’t pay your debts when they’re due, and you’re in Australia or have a residential or business connection here. There’s no minimum or maximum amount of debt or income. If you’re in a debt agreement, it has to be ended before you can apply.

Can a creditor make me bankrupt?

Yes. A creditor you owe $10,000 or more can apply to the court to make you bankrupt. This is called a creditor’s petition.

What can I keep if I go bankrupt?

You can usually keep ordinary household goods of reasonable value, and tools of trade and vehicles up to set amounts. Your trustee can claim other assets, including a house, and any cash or money in your bank account on the day you become bankrupt, leaving enough for modest living expenses.

How long does bankruptcy stay on my credit file?

Credit reporting agencies keep a record of your bankruptcy for 5 years from when you became bankrupt, or 2 years after it ends, whichever is later. Your name stays on the National Personal Insolvency Index permanently.

How does bankruptcy affect my partner?

Your partner doesn’t become bankrupt, and only your income is used to work out compulsory payments. But your trustee can claim your share of jointly owned assets, and on a joint debt your partner normally becomes liable for the full amount.

How much does it cost to go bankrupt?

There’s no fee to apply. Trustees charge fees, which are generally paid from money in the bankrupt estate. Debt Negotiators is a fee-based service, and our fees are explained before you decide.

Do I need a lawyer to go bankrupt?

No. You can apply yourself through AFSA. Because the consequences are serious and long-lasting, it’s worth understanding how bankruptcy would affect you, and comparing it with the other options, before you apply.

Compare bankruptcy with your other options

Answer 9 quick questions, then we call to go through how each option would affect you.
Answer 9 quick questionsCall 1300 351 008
Debt Negotiators is a fee-based service. The information on this page is general and doesn’t take your circumstances into account. Outcomes depend on your situation, and no outcome is guaranteed. Formal options such as debt agreements and personal insolvency agreements can affect your credit report and your ability to get credit. ACL 390820 · AFSA RDAA 1403.
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