Thinking About Filing for Bankruptcy?
Here’s What You Need to Know

When the bills are piling up, the collection calls are coming in, and there’s no way you can pay everything you owe while continuing to cover your daily living expenses, applying for Bankruptcy can offer you a fresh start.

While we recommend first exploring other options such as an Informal Arrangement or Formal Debt Agreement, eligibility requirements may leave filing for Bankruptcy as your only option.

Even if that’s the case, the good news is that like other debt solutions, applying for Bankruptcy offers a fresh start by helping you take back control of your finances and get out of debt.

Is Filing for Bankruptcy Right for You?

Bankruptcy is a legal process that can be declared when you’re insolvent, meaning you can no longer pay your debts when they’re due.

Once you’ve filed for Bankruptcy, you give up control of your finances and assets for a period of time.

In exchange, you receive protection from legal action from your creditors and a new arrangement to affordably pay off your debts.

Applying for Bankruptcy may seem like an easy and attractive option to quickly deal with your creditors, however, you should be aware of the disadvantages as well as the benefits of filing for Bankruptcy.

As we mentioned above, there are other options including Informal Arrangements and Formal Debt Agreements we can help you explore before you decide to file for Bankruptcy.

Benefits of filing for Bankruptcy include:

  • Once you’ve been discharged from Bankruptcy, most of your debts will be cleared.
  • There is no minimum amount you need to owe in order to file.
  • All collection calls from unsecured creditors are stopped.
  • Your unsecured creditors won’t be able to pursue further legal action.
  • If your annual income is below an indexed amount, you won’t be required to use any of it to pay your debts (you can make voluntary payments but are not required to do so).
  • You’ll be assigned a trustee who will handle most communications between you and your creditors.
  • Any payments you do make will go directly to your trustee and they’ll handle the rest.
  • Bankruptcy usually only lasts 3 years 1 day.
  • You can keep a motor vehicle valued up to $7,700.
  • You can keep any professional tools of trade up to a total value of $3,750.
  • You can keep your everyday household items.
  • Your superannuation is generally protected.

Disadvantages of filing for Bankruptcy include:

  • Secured creditors will likely be entitled to seize property such as your car or home and may contact you to discuss this.
  • You’ll have difficulty accessing credit for a period of time after filing for Bankruptcy (your Bankruptcy is recorded on your credit report for 5 years).
  • A permanent record of your Bankruptcy is kept on the National Personal Insolvency Index (NPII), which can be accessed by anyone for a fee.
  • You may be required to hand over your passport and must obtain permission from your trustee to leave Australia.
  • Trustees are able to investigate your past dealings and in some cases, will recover property that you’ve transferred up to 5 years before the date of your Bankruptcy.
  • Obtaining credit or writing cheques above $5,546 is a criminal offence if you don’t inform the person extending credit (or receiving that cheque) of your status during Bankruptcy.
  • You will encounter difficulty in or may not be able to seek employment in certain industries due to licensing requirements.
  • While existing debt repayments stop, you’ll be required to pay 50% of all income over an indexed limit, including Tax Returns, Termination Payments, Inheritances and Windfalls.
  • You’ll still be liable for debts such as Traffic Fines, Tolls, HECS debts, Child Maintenance, and any debts incurred after you file.
  • Legal action may be taken against you if you do not co-operate with the trustee and fulfil certain responsibilities.
  • You will likely lose most of your valuable property.

Eligibility Requirements of Filing for Bankruptcy

To be eligible to file for Bankruptcy, you must have a relevant Australian connection, for example:
  • You are personally present or ordinarily live in Australia.
  • You have a home or place of business in Australia.
  • You or your firm/partnership is conducting business in Australia.
Additionally, your application may be rejected if:
  • Your forms are incomplete or inaccurate.
  • You do not provide sufficient proof of identity.
  • The Official Receiver is of the view that you can pay all your debts within a reasonable time.
  • You have previously been bankrupt 3 or more times, or once in the last 5 years.
  • You are unwilling to pay one or more creditors or creditors in general.

For more information about benefits, disadvantages, and eligibility requirements, visit the official filing for Bankruptcy
on the Australian Financial Security Authority (AFSA) website.

Contact Us Today for Your Free, No Obligations Consultation

Get Free from Debt Today!

How Does Filing for Bankruptcy Work?

If you feel you’re unable to pay your debts and either are ineligible or prefer not to use a Bankruptcy alternative, then you may voluntarily lodge a debtor’s petition to become bankrupt.

It’s also possible for a creditor to force you to become bankrupt if you owe them over $5,000, however, you may voluntarily lodge a petition if you owe any amount.

Once you’ve decided to file for Bankruptcy, we’ll help you prepare your debtor’s petition and Statement of Affairs, then submit them to the AFSA for approval.

At this time, you’ll also be able to choose to allow the AFSA to administer your Bankruptcy or work with one of our registered trustee partners, whom you may prefer if you have a more complex estate.

Once approved, the creditors disclosed on your Statement of Affairs will be sent a notification of your Bankruptcy by the AFSA, and you’ll be assigned a trustee who will begin investigating your financial affairs.

If your application is not accepted, you’ll be notified and we’ll help you seek a review of the decision by the Administrative Appeals Tribunal (AAT).

In the meantime, your creditors will once again be able to contact and take other collection actions against you until your petition is accepted.

Once you officially become bankrupt, your unsecured creditors will cease to contact you, and most legal action they have taken against you must stop.

This includes a garnishee from your income or bank accounts or any recovery action by a sheriff or bailiff.

If you’ve arranged with your secured creditors to keep any secured assets, they may continue to contact you.

Be aware there are some debts which you must continue to pay during Bankruptcy.

Debts you must continue to pay include:

  • Court penalties and fines.
  • Unliquidated damages from accidents (e.g. car accidents).
  • Student loans and HELP debts.
  • Utility Bills.
  • Any debts you incur after your Bankruptcy begins.

In addition to any required and voluntary payments you’ll make to resolve your debts during Bankruptcy, the trustee will also take charge of and sell some of your assets to repay your creditors. Assets are defined as anything of value you own when you become bankrupt, as well as anything you buy or receive before the end of your Bankruptcy. Certain assets are protected property and cannot be sold by the trustee.

Protected Assets include:

  • Most of your ordinary household or personal items.
  • Professional tools of trade used to earn an income up to a value of $3,750 total.
  • Any motor vehicle primarily used as a means of transport (e.g. cars or motorbikes) up to a value of $7,700.
  • Most funds in a complying superannuation fund.
  • Life insurance policies.
  • Compensation for a personal injury.
  • Centrelink payments.

Assets which your trustee can recover and sell include:

  • Houses, apartments, land, business and any other real property.
  • Motor vehicles which valued above an indexed limit.
  • Shares and other investments.
  • Any tax refund for income earned before you become bankrupt.
  • Any inheritance earned before or during your Bankruptcy.
  • Lottery winnings.

Be aware that any asset you jointly own may also be sold by your trustee. Before filing for Bankruptcy, be sure you fully understand exactly which of your assets are protected and which are not (we can help you with that). In addition to being required to give some assets to your trustee to sell, you may be required to make regular payments if you earn an income above an indexed amount.

While any payments made to the trustee are voluntary if your income falls below that indexed amount, required payments are enforceable by law and can result in garnishee on your income if they aren’t made voluntarily. Once you’re officially bankrupt, you gain a few rights and responsibilities in addition to relief from your debt and any payment obligations.

Additional rights and obligations:

Borrowing Money

It becomes an offence for you to borrow money or otherwise purchase goods on credit above an indexed amount ($5,546) without informing the person you’re dealing with that you are in the midst of Bankruptcy.

Operating a Business

You can still operate a business while bankrupt, but if you operate under an assumed or business name, you must inform your partners and vendors of your Bankruptcy status.

Changing Your Name, Address, and Overseas Travel

You will be required to notify your trustee of any name or address changes, and you must receive written permission in order to travel overseas.

Credit Cards and Bank Accounts

Once you’re officially bankrupt, all of your current creditors will be notified, and if you seek credit above the indexed limit ($5,546), you’ll be required to inform any new creditors of your Bankruptcy until you’ve been discharged.
After that, it is up to each new creditor or bank whether they extend credit or offer other banking services to you.


Your Bankruptcy may prevent you from being employed in certain occupations or holding certain professional licences.
Additionally, you cannot be a company director or involved in its management without court permission.

Before deciding to file for Bankruptcy, be sure to contact any professional organisations you’re registered with to verify any restrictions on continuing your employment should you become bankrupt.

Your employer is not normally notified of your Bankruptcy unless you owe them money or fail to make any required payments.

Court Appearances

Your trustee will decide whether there is any reason for you to appear before the Court. For example, if an investigation is made into your affairs, you may be required to attend an examination.

Contact Us Today for Your Free, No Obligations Consultation

Get Free from Debt Today!

Other Consequences of Bankruptcy

In addition to the above rights and responsibilities, it’s important to be aware that Bankruptcy also comes with a few offences you should avoid.

Offences while bankrupt include:

  • Disposing of any property before filing for Bankruptcy with the intention of harming your creditors.
  • Failing to disclose any assets.
  • Deliberately obtaining credit you know you cannot pay.
  • Gambling and speculation which contributes to your Bankruptcy.
  • Applying for credit above the indexed amount ($5,546) without disclosing that you are currently bankrupt.
  • Operating a business under an assumed name without disclosing your Bankruptcy status to your partners and vendors.
  • Leaving Australia without written permission from your trustee.

If you are convicted of any of these offences, the penalties vary from 6 months to 3 years in prison. Other than the required disclosures mentioned above, your Bankruptcy is generally not advertised. However, your name will be entered in the National Personal Insolvency Index (NPII), which can be accessed by anyone for a fee, and remain there forever. Your Bankruptcy will be placed on your credit report for 5 years from the date it begins, regardless of whether or not you’ve been discharged.

As a result, lenders may limit your ability to borrow or otherwise use credit. It may also be hard to rent property or get utilities connected without paying a bond, and some banks may not let you open or maintain an account.

The good news is, your Bankruptcy will typically only last for 3 years and 1 day, though your trustee may lodge an objection to your being discharged at that time. If this is the case, it can only be extended for an additional 5 years. Furthermore, if you make sufficient progress to pay your debts, your Bankruptcy may even be annulled before then.

To learn more about whether filing for Bankruptcy is right for you, see our FAQ below or click here to contact us today!


  • Can my creditors still contact me about making payments once I have filed for Bankruptcy?


    Once you voluntarily lodge a debtor’s petition, all creditors are notified to cease any collection efforts against you, with the exception of secured creditors with whom you have made an agreement to retain your secured property. If other creditors continue to attempt to collect from you, you should inform them of your Bankruptcy and if they continue, notify your trustee to have the issue resolved.

  • Can my application to voluntarily become bankrupt be rejected?

    Your application may be rejected if:

    It seems you are likely to be able to pay your debts.
    It seems you are avoiding payment of particular debts.
    You have been bankrupt 3 or more times, or at least once within the last 5 years.

  • What is the role of the trustee?

    A registered trustee is responsible for administering your Bankruptcy.

    In order to attempt to pay your creditors they will:

    When you file for Bankruptcy, we can refer you to one of our registered trustee partners to have them administer your Bankruptcy, which is especially helpful if you have a complex estate. Otherwise, the AFSA will become your trustee or may arrange for another registered trustee to be appointed. Be aware that your creditors may choose to change your trustee at any time.

  • What if my house is mortgaged?

    Your trustee will decide whether to sell any real estate you own, including your home. If your property is jointly owned, your trustee may consider selling your interest in it to a non-bankrupt joint owner. Any such owners may also make an offer to purchase that interest from the trustee.

  • What if I have a car?

    Any vehicle which you primarily use as a means of transport (e.g. a car or motorbike) is protected as long as it’s valued under an indexed amount ($7,700). Your trustee is required to sell any vehicle that’s worth more than that amount (or is not primarily used as a means of transport) and return the indexed amount ($7,700) to you. The rest of the proceeds are used to pay your creditors.

  • What happens if someone jointly signed a loan agreement?

    Generally, they will still be liable to pay the total outstanding amount on that debt.

  • What happens if someone has guaranteed some of my debts?

    Bankruptcy does not affect the rights of a creditor to claim your guarantor liable for a debt. Your guarantor will be responsible for paying the remainder of that debt, but once they do, they will be able to lodge a claim against you in your Bankruptcy for that paid debt.

  • What about debts incurred just before Bankruptcy?

    If you are already unable to pay your debts, you should not take on any further credit because, should you choose to file for Bankruptcy, it may become a prosecutable offence.

  • What about debts incurred after Bankruptcy?

    After you become bankrupt, you will be fully liable for any additional debts you incur.

What Happens Now?

If you’re struggling to pay your debts, owe multiple creditors, and are tired of receiving endless collection calls, you have options.

We know exploring those options, filling out the necessary paperwork, and negotiating with your creditors to resolve your debt can be just as stressful as having it in the first place. That’s why we’re here to provide you with the information and help you need to make the right decision.

While we highly recommend exploring other options such as an Informal Arrangement or Formal Debt Agreement before deciding to file for Bankruptcy, sometimes Bankruptcy is your best option. If you’re ready to end the collection calls and finally get free from debt, contact us today to learn more about whether filing for Bankruptcy is right for you.

Contact Us Today for Your Free, No Obligations Consultation

Get Free from Debt Today!