Bankruptcy is a legal option available to Australians who are unable to pay their debts and are experiencing financial hardship. While it can offer protection from further creditor action, it also has serious long-term consequences — so it’s important to fully understand what’s involved.
What Is Bankruptcy?
Bankruptcy is a formal insolvency process governed by the Bankruptcy Act 1966 and overseen by the Australian Financial Security Authority (AFSA). When you become bankrupt, a registered trustee takes control of your assets and finances. In return, you may be released from most unsecured debts — depending on your individual circumstances.
Some key aspects of bankruptcy include:
- You are no longer legally required to repay most unsecured debts
- You may be subject to income contributions if you earn above a set threshold
- Your name is recorded on the National Personal Insolvency Index (NPII)
- Bankruptcy usually lasts for 3 years and 1 day (but can be extended)
- It is not a decision to take lightly, and not all debts or assets are affected in the same way.
How Bankruptcy Works?
- You complete a Bankruptcy Form via AFSA, providing full disclosure of your financial situation
- A registered trustee is appointed to manage your bankruptcy
- The trustee will assess your assets, income, and liabilities
- Most unsecured debts are included and may no longer need to be paid
- During bankruptcy, you are subject to restrictions (e.g. overseas travel, credit access)
Who Might Consider Bankruptcy?
Bankruptcy may be considered by individuals who:
- Are unable to pay their debts when they fall due
- Have explored or exhausted other formal and informal options (e.g. hardship, informal arrangements, debt agreements)
- Are facing ongoing creditor pressure or legal action for unpaid debts
Important Considerations
Bankruptcy has serious long-term impacts, including:
- Your name listed on public insolvency registers (NPII)
- Difficulty accessing credit or loans in the future
- Potential impact on your job or professional licenses (depending on industry)
- Requirement to surrender certain assets (e.g. property or vehicles over the threshold)
- Ongoing income reporting and contribution obligations (if applicable)
Some debts are not covered under bankruptcy, such as:
- Court fines
- HECS/HELP student loans
- Child support or spousal maintenance
