What are the consequences of bankruptcy in Australia?

Declaring bankruptcy in Australia can feel like a lifeline if you're overwhelmed with debt - but it also comes with long-term consequences. While bankruptcy may clear many types of debt, it affects your ability to borrow, hold assets and even travel overseas.

Some of the major consequences of bankruptcy include: making compulsory payments to your trustee if you earn over a certain amount, a permanent record on the National Personal Insolvency Index and your trustee being allowed to sell your assets e.g. real estate, a car and even lottery winnings.

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.

Finder survey: How familiar are Australians with the consequences of bankruptcy?

Almost a third of people we surveyed did not know anything about the consequences of bankruptcy.

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.

What debts will be cleared from declaring bankruptcy?

After declaring bankruptcy most of your debts will be cleared so you won't have to pay them after your bankruptcy ends. Although there are a few debts that are not included in this. The tables below show what debts are (and aren't) included in your bankruptcy so you can make an informed choice about whether it's right for you.

Unsecured loan debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
Credit card		-
Store card		-
Unsecured personal loan		-
Unsecured business loan		-
Trade creditor		-
Payday loan		-
Pawn shop loan		You won't get your pawned item/s back.
Overdrawn account		-

Secured loan debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
House mortgage		Your house is likely to be sold though.
Motor vehicle security		You will have to surrender your vehicle if the account falls into arrears or if the vehicle equity is worth more than the indexed amount.
Secured business loans		You need to repay the debt or the secured asset may be sold.
Chattel mortgage		You need to repay the debt or the secured asset may be sold.

Household debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
Gas, electricity, phone, Internet, pay TV		The supplier may choose to no longer supply you or may require a bond.
Outstanding rent where you live		Check local laws to see your tenancy rights – your landlord may be able to terminate your tenancy agreement.
Outstanding rent at a place where you used to live		-
Debts from a property you damaged as a tenant		-

Debts that are not cleared by bankruptcy

Some debts remain your responsibility even after bankruptcy ends. These include:

• Court-imposed fines and penalties
• Child support and maintenance payments
• HECS-HELP and other student loans under Australian law
• Debts you incur after you've been declared bankrupt

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.

How do I start rebuilding credit after bankruptcy?

Rebuilding credit takes time, but there are steps you can take once your bankruptcy ends:

• Pay your bills on time. Even small accounts like phone or utility bills can help show lenders you're reliable.
• Stick to a budget. Lenders want to see you can manage money responsibly.
• Consider a low-limit credit card. Some banks offer secured or low-limit cards. Using one carefully and paying it off in full each month can help rebuild your credit history.
• Avoid applying for too much credit. Too many applications in a short time can hurt your score.
• Check your credit report. Make sure it's up to date once your bankruptcy period has ended and the listing is removed.

Remember, improving your credit won't happen overnight - but with consistent, responsible financial behaviour, most people start to see progress over time.

Frequently asked questions

• How hard is it to recover from bankruptcies?

  Recovering from bankruptcy can be challenging, especially as it significantly impacts your credit score. It may take years to rebuild your credit, secure loans or qualify for credit cards. However it's not impossible to rebuild afterwards. Creating a solid financial plan, repaying debts and proving financial stability can gradually improve your credit and your overall financial situation over time.

• How long will bankruptcy affect my credit report?

  In Australia, bankruptcy will generally remain on your credit report for 5 years from the date you became bankrupt, or 2 years from the date your bankruptcy ends whichever is later. Most bankruptcies last for 3 years and 1 day, so in practice it usually stays on your file for around 5 years in total.

  Even after it's removed from your credit report, your name will also appear on the National Personal Insolvency Index (NPII) permanently, which is a public record maintained by the Australian Financial Security Authority (AFSA).

  This means while your credit report will eventually clear, lenders may still be able to see you've been bankrupt if they check the NPII.

• Can I keep my car if I declare bankruptcy?

  It depends on the value of your car and whether it's still under finance.

  • If you own your car outright and it's worth less than the set threshold (about $9,100 as of 2025), you can usually keep it.
  • If the car is worth more than the threshold, your trustee may sell it and use the money to help repay your debts.
  • If your car is under finance (such as a car loan or lease), the lender still has rights over it. If you keep making the repayments and the equity in the car is under the threshold, you may be able to hold onto it.

  Bankruptcy doesn't automatically mean you'll lose your car - but whether you can keep it depends on its value, finance situation and your ability to keep up with repayments.

Want to speak to someone about your debt?

If you'd like free, independent advice, you can contact the National Debt Helpline on 1800 007 007. They have financial counsellors who can explain your options without charge.