Bankruptcy is a legal process that releases you from your debts. If you're unable to pay your debts and you cannot come to suitable payment arrangements with your creditors, you might apply to become bankrupt.
Applying for bankruptcy can have serious long-term consequences, and it is important to get advice from a qualified financial counsellor or bankruptcy lawyer. They will explore whether you have any other options and explain the consequences of bankruptcy.
To apply for bankruptcy yourself, you must lodge a form with the Australian Financial Security Authority (AFSA) at afsa.gov.au.
The effects of bankruptcy
Bankruptcy generally lasts for three years. During this time, you are an "undischarged bankrupt", and there are obligations on you and restrictions on what you can do. For example, you must notify your trustee of any change in your income or assets; you cannot travel overseas without your trustee's written permission; and you cannot be a company director. (See afsa.gov.au/insolvency for details.)
After the bankruptcy is discharged, these restrictions no longer apply. However, there are some significant lasting consequences:
a permanent record of your bankruptcy is listed on the National Personal Insolvency Index (an electronic public register)
your bankruptcy will remain on your credit report for up to five years, or longer in some circumstances. This may affect your ability to borrow money.
What happens if I become bankrupt?
When you become bankrupt, a trustee will be appointed to your case. The trustee will take control of most of your financial affairs. You can choose to appoint a registered trustee - for a list, see the AFSA's Register of trustees. If you do not choose a trustee, AFSA will appoint the Official Trustee to manage your finances. Your creditors may choose to take action to change the trustee at any time.
The trustee informs creditors of your bankruptcy. This means unsecured creditors should stop pursuing you for payment. Once you are bankrupt, these creditors have to deal with your trustee to have their debts repaid.
To pay your creditors, the trustee will:
- sell your assets, which may include your home (you will be able to keep some household goods and personal items)
- take an amount from your income once you are earning over a certain amount
- investigate your financial affairs
- recover property or money that you have transferred to someone else for less than market value.
Expert content reviewers:
Keith Manchester, Senior Legal Counsel, Financial Services Legal, AMP, NSW; Alka Bisen, Financial Counsellor and Project Coordinator – Financial Assistance Services, Cancer Council NSW; Patricia Dunn, Consumer; Emily Gibson, Social Worker, Mater Hospital Brisbane, QLD; Caitriona Nienaber, 13 11 20 Consultant, Cancer Council WA; Michelle Ruchin, Social Worker, Cancer Council SA; Robert Simon, Technical Services Manager, Tapln and Technical Strategy, AMP Advice, NSW; Krystyna Wisniewski, Consumer.