Get the Finder app 🥳

Track your credit score


What are the consequences of bankruptcy?

Find out what it means to be bankrupt, and if it will be worth it for you.


We’re committed to our readers and editorial independence. We don’t compare all products in the market and may receive compensation when we refer you to our partners, but this does not influence our opinions or reviews. Learn more about Finder .

Declaring bankruptcy can be seen as a way out when you're drowning in debt.

What actually happens when you declare bankruptcy? What are the consequences and how long do these last?

This guide will take you through exactly how declaring bankruptcy will affect your life so you can decide if it's the right avenue for you to take.

What does it mean to declare bankruptcy?

This is a process where you are legally declared unable to repay your debts.

If you enter bankruptcy yourself voluntarily, it is referred to as a debtor's petition but you will have to be insolvent (unable to pay your debts when they are due). You can also be made bankrupt by one of your creditors through a court process which is called a creditor's petition.

How do you declare bankruptcy?

To be eligible for bankruptcy you need to:

  • Be insolvent. That is, be unable to pay your debts when they are due.
  • Be present in Australia or have a residential or business connection to Australia.

You don't need to have a certain amount of debt to be eligible for bankruptcy. Once you've done your due diligence to decide if bankruptcy is right for you (i.e. you have explored all other options), you need to head to the Australian Financial Security Authority's (AFSA) website and download an application form. If your application is accepted, the AFSA will send your creditors confirmation.

What are the consequences of being bankrupt?

There are several consequences of becoming bankrupt which you need to seriously consider before you apply to be bankrupted.

Length of bankruptcyYou will usually be considered "currently bankrupt" for three years and one day from the day you file your statement of affairs. However, in some cases, trustees can lodge an objection to end your bankruptcy and have it extended for up to eight years.
IncomeIf you earn over a certain amount, you will need to make compulsory payments to your trustees. This amount changes depending on how many dependants you have.
EmploymentYou need to inform your trustee if you change jobs, receive a higher or lower income or stop working.
SavingsYou can usually save money during your bankruptcy but you must keep this money in a normal savings account. If you move these funds to a term deposit or purchase an asset, your trustee can claim it to repay your debts.
The National Personal Insolvency Index (NPII)While your bankruptcy only lasts for a limited time, your name will appear on the NPII forever.
Ability to obtain credit in the futureFor a period of five years from the date you become bankrupt or two years from when your bankruptcy ends (whichever is later), you need to inform credit providers of your bankruptcy when applying for credit over a certain amount.
AssetsYour trustee is able to sell your assets such as real estate, vehicles, bank balances, tools and lottery winnings. You also need to declare any items you apply for and receive during bankruptcy.
Overseas travelIf you want to travel overseas while you're bankrupt you need to submit an application to your trustee. Your trustee doesn't have to approve your travel and can place restrictions on your travel.

What are the alternatives to bankruptcy?

If you're considering bankruptcy due to unmanageable debt, make sure you've considered your alternatives before you apply:

  • Negotiate directly with your creditors. Contacting your creditors and negotiating yourself can be an effective way of getting a handle on your debt. Some things you can negotiate include more time to pay, a flexible payment arrangement or even a smaller, lump sum payment to settle your debt. Explain your position to your creditors and they may be more willing to negotiate with you.
  • Part 9 Debt Agreement. While this is a type of bankruptcy, entering into a Part 9 Debt Agreement is not the full act of declaring bankruptcy. Find out about the differences here.
  • Personal Insolvency Agreement (PIA). Also known as a Part 10, this agreement is between you and your creditors and involves a trustee being appointed to take control of your property and making an offer to your creditors. The offer may be to pay part or all of your debts by instalments or in a lump sum.

Want to speak to someone about your debt?

Rates last updated October 23rd, 2020
Fox Symes Debt Solutions Fox Symes Debt Solutions Fox Symes offers a range of debt consolidation options to help you if you're struggling with multiple debts. Enquire now

More guides on Finder

Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 25.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.

Logo for SocietyOne Unsecured Personal Loan
SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

Logo for Pepper Money Unsecured Fixed Rate Personal Loan
Pepper Money Unsecured Fixed Rate Personal Loan

You'll receive a fixed rate between 6.95% p.a. and 17.95% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Make additional repayments or pay off the loan early, penalty-free.

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.

2 Responses

  1. Default Gravatar
    EvanMay 18, 2019

    I will be in probably $100,000 debt after a divorce. Is it worth going bankrupt? Thanks in advance.

    • Avatarfinder Customer Care
      MaiMay 19, 2019Staff

      Hi Evan,

      Thank you for reaching out.

      Sorry to hear that you will be on a bad shape after your divorce.

      Try to check and weigh the consequences when you go file bankruptcy. The page above list the consequences of being bankrupt. If you feel that it will be a good help for you, then you can go on and file for one. However, there are alternatives to banruptcy that you may want to consider. You can try negotiating directly with your creditors, file Part 9 Debt Agreement and Personal Insolvency Agreement (PIA). You can try to check these three first then decide if you still wish to file bankruptcy.

      Hope you can get back on track the soonest.

      Kind Regards,

Go to site