What is bankruptcy?

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Under Australian Law, personal bankruptcy laws are covered under the Bankruptcy Act 1966 (Cth).

The link above will allow you to access the full details of the Act.

Alternatively, you can read A Guide to Bankruptcy Laws elsewhere within the [name] blog.

The Australian Financial Security Authority (AFSA) are the government agency that is responsible for administering and upholding the Act.

Steps to Becoming Bankrupt

In Australia, an individual may be declared bankrupt if it is deemed they are unable to repay their debts. There are two ways in which individuals can be made bankrupt:

  1. The individual themselves decides that they are unable to meet their debt obligations, and files a Debtors Petition with the AFSA.
  2. Creditors who are owed money (that together totals at least $5,000) and have been unable to reach an agreement or make alternative arrangements for repayments with a debtor can file a Creditors Petition at Court.

What Happens If You Are Declared Bankrupt

Upon being declared bankrupt, a Bankruptcy Trustee would take over management of your liabilities. The trustee will manage your property and other assets. This means that your property and assets (including your vehicle) may be sold for the benefit of your creditors. Although trustees are usually sympathetic to your situation and will look to work with you to ease the effect of bankruptcy on your life, you should remember their role is to ultimately ensure you repay as much of the outstanding debt as possible to your creditors.

Whether you become bankrupt voluntarily or via a Creditors Petition, there are significant consequences that can have a profound impact on your life.


If your after-tax income exceeds a certain amount you will have to pay contributions from your income to your trustee.

What are the Consequences of Bankruptcy?

Whether you become bankrupt voluntarily or via a Creditors Petition, there are significant consequences that can have a profound impact on your life.

If you are declared bankrupt, you could:

  • Be banned from travelling overseas
  • Lose your job
  • Be excluded from applying for roles in specific sectors in future
  • Find it difficult to access credit
  • Lose social mobility if your vehicle is sold
  • Lose your home
  • Suffer emotional distress as a result of the bankruptcy itself as well as the circumstances

Although in severe circumstances it may seem that bankruptcy is the only suitable option, such are the wide ranging and long term consequences of being declared bankrupt that it is often wise to explore every other possible solution before going down this path.

Our article Is It Wise to File for a Bankruptcy? might help you with your decision making process.

Given the circumstances that surround bankruptcy, it is worth doing everything you can to avoid this being the ultimate outcome to your financial difficulties.

How Long Does Bankruptcy Last?

When you are made bankrupt, you will remain bound under the terms of the bankruptcy for at least three years and one day. If you have met the obligations of your bankruptcy and co-operated with your assigned trustee over this time period, it is likely you will be discharged from the bankruptcy at this time, although it will remain on your credit file for up to 2 years from the date of discharge, or up to 5 years from the date you became bankrupt, whichever is later..

Failure to meet your bankruptcy obligations or to co-operate with your trustee could lead to your trustee extending your bankruptcy up to eight years.

In cases where you have been made bankrupt but have then been able to repay all your debts to creditors, your bankruptcy can sometimes be annulled by your trustee.

Alternatives to Bankruptcy

Bankruptcy is often a last resort for individuals as well as for creditors. Given the circumstances that surround bankruptcy, it is worth doing everything you can to avoid this being the ultimate outcome to your financial difficulties. Alternatives that you could look at if you are facing financial difficulties include:

  • Applying for a debt consolidation loan, although you may find it difficult to access credit if you have already started missing payments or already have defaults
  • Entering a personal insolvency agreement, which is less time consuming and restrictive than the bankruptcy process
  • Speaking with a debt counselor or a qualified Insolvency Practitioner
  • Entering a debt management plan
  • Working with your creditors directly to agree a repayment plan – this is often less scary than you think it will be, and you should remember that creditors would prefer to receive something rather than nothing!

Bankruptcy and You

Sometimes bankruptcy will present itself as the only option available to you, however this should only be the case once you have explored all alternative solutions and done all you can to avoid this outcome. Look to address any financial difficulties at the earliest possible stage in order to avoid sanctions that could ultimately lead to bankruptcy.


Please seek independent legal advice for specific cases. This article is for general information only.

Disclaimer:  This article contains general comments and recommendations only. It is not intended to be and should not be construed as legal advice. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action, you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

Categories: Bankruptcy, Debt Management

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