Finder makes money from featured partners, but editorial opinions are our own.

What are the consequences of bankruptcy?

While bankrupt it can be difficult to travel overseas, borrow money or own assets.

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?

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.

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.

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.

Response
I know a little bit55.91%
I don't know anything about the consequences of bankruptcy31.89%
I know a lot12.2%
Source: Finder survey by Pure Profile of 1016 Australians, December 2023

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 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

DebtWill my debt be cleared by bankruptcy?Conditions
Credit cardYes-
Store cardYes-
Unsecured personal loanYes-
Unsecured business loanYes-
Trade creditorYes-
Payday loanYes-
Pawn shop loanYes

You won't get your pawned item/s back.

Overdrawn accountYes-

Secured loan debt

DebtWill my debt be cleared by bankruptcy?Conditions
House mortgageYesYour house is likely to be sold though.
Motor vehicle securityYesYou 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 loansNoYou need to repay the debt or the secured asset may be sold.
Chattel mortgageNoYou need to repay the debt or the secured asset may be sold.

Household debt

DebtWill my debt be cleared by bankruptcy?Conditions
Gas, electricity, phone, Internet, pay TVYes

The supplier may choose to no longer supply you or may require a bond.

Outstanding rent where you liveYes

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 liveYes-
Debts from a property you damaged as a tenantYes-

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 8th, 2024

Need more information?

Why compare personal loans with Finder?

freeAddicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
expert adviceRates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest.
independentCash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.

More guides on Finder

  • Salt and Lime Debt Consolidation Loan

    Looking to consolidate your debt? Salt and Lime offers fee-free loans, same-day funding, and the ability to earn discounts on your interest over the life of the loan. Apply today.

  • Insolvency vs bankruptcy

    Want to understand the differences between personal insolvency and bankruptcy, and what both of these terms mean for your financial future? Find out here.

  • Debt negotiation

    What is debt negotiation and how can it help you? Find out here.

  • Fox Symes Debt Consolidation Solutions

    If you're juggling multiple debts and struggling with your repayments each month, a debt consolidation loan from Fox Symes may be an option for consider. Find out what's involved with its debt consolidation personal loan in our guide and if its right for you.

Ask a question

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au 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 Service and Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

2 Responses

    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
      MaiMay 19, 2019Finder

      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,
      Mai

Go to site