Bankruptcy

Bankruptcy is the formal process of you declaring (or being declared by a court) that you are 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.

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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 a financial counsellor on 1800 007 007 for a discussion about your personal situation. Financial counsellors do give free advice (and assistance for some people) if you are considering bankruptcy.

 

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.

These include the loss of your home and other assets, making it difficult for you to obtain credit and limiting your employability. If you declare bankruptcy, your name will also be listed on a public record, the National Personal Insolvency Index.

 

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. Your creditors can force you into bankruptcy if you owe more than $10,000 in total.  This $10,000 threshold came into effect 1 January 2021.  Prior to 25 March 2020 the threshold was $5,000.

 

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.

The Australian Financial Security Authority (AFSA) is the government body that manages the application of bankruptcy and personal property securities laws in Australia.

To apply for bankruptcy you will need to complete and submit a Bankruptcy Form online with AFSA.

1  The Bankruptcy Form is available on the AFSA website. This page has detailed instructions on the next steps.

2  To access the Bankruptcy Form, you will need to:

  • create an Insolvency Services Account;
  • verify your identity; and
  • complete and submit your form online.

3. The form clearly states what information will not be accessible by the public. For further information see Public Record

4. Call us on 1800 007 007 if you need help filling in the form. We can also refer you to a financial counsellor in your area for a face-to-face meeting.

5. Once you have submitted your Bankruptcy Form, online, you can log into your online account to check the status of the application.

If online lodgement is not an option for you, you can lodge your application offline.  To do this contact AFSA on 1300 364 785 to request a copy of the paper form and return it, completed, by post.

Once you are  declared bankrupt, a trustee will be appointed within two weeks by AFSA to manage your financial affairs. You may be assigned a private trustee or AFSA may be your trustee.

 

Public Record

If you declare bankruptcy, your name will be listed on a public record, the National Personal Insolvency Index.

Where your personal safety is at risk, you can apply to suppress your address from this public record.

The form to request this suppression is available on AFSA’s website under Request for information to not be on the NPII.

Providing evidence of the violence, such as a copy of an Intervention Order or a report from a support worker is important.

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Resource

If you are considering bankruptcy or other ways of managing your debts, it is important you get advice from reputable sources.

The Australian Financial Security Authority has developed a  video, Bankruptcy Advice: Untrustworthy Advisors, which explains in simple terms how easy it is to be tricked into accepting untrustworthy information from unregulated, unlicensed advisers. These people target you in times of financial crisis.

If you are unsure call a financial counsellor for advice on 1800 007 007.

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 on their application forms if you’ve ever been bankrupt.

Loss of assets

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

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, such as furniture, TVs and computers
  • a car worth less than a certain value*
  • tools of trade worth 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 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 as a sole trader during your bankruptcy. 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.

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FORCED BANKRUPTCY

Creditors who have tried unsuccessfully to recover debts that total at least $10,000 can force you into bankruptcy. If you’re in this situation, call us on 1800 007 007.

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