Financial Rights Legal Centre
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Should I Consider bankruptcy?

This fact sheet is for information only. It is recommended that you get legal advice about your situation.


Tony was in his late forties when he lost his job. After twelve months of looking for work he began to lose all hope. His creditors had also lost patience. Despite several hardship variations in the first 6-8 months he was facing letters of demand, court documents and now the Sheriff had tagged his household goods for seizure. He owed money on 3 credit cards, a car loan, a big mobile phone bill he couldn’t pay and a tax debt. His rent was about the only payment he was up to date with. The sheriff suggested he talk to a financial counsellor about going bankrupt.


Bankruptcy involves an exchange. You hand over control of your property and finances to a trustee in exchange for protection from legal action by your creditors (the people/companies you owe money to). You do not have to have a minimum amount of debts or property to enter bankruptcy, but you need to be insolvent (unable to pay your debts when they fall due). You get to keep some basic personal property. Bankruptcy can give you relief from debt collection and a fresh start (release from your debts), but it also involves many drawbacks.

The following is a brief summary of the advantages and disadvantages of bankruptcy. You need to get advice about your particular circumstances.


There are many advantages to going bankrupt:

  • You will stop being harassed by most of your creditors.
  • Legal action against you to recover many types of debt will stop.
  • The Sheriff will not be able to take your essential household goods (except for new debts incurred after bankruptcy).
  • Any garnishee of your wages or bank account will stop (except certain garnishees by the Australian Tax Office).
  • You will be able to keep some protected property such as essential household goods and a cheap motor vehicle (See Protected Property below).
  • Generally, you can still earn an income (with some exceptions – see disadvantages below)
  • You will be released from most debts when you are discharged from bankruptcy (most commonly after 3 years and 1 day).


If you are bankrupt you can keep the following property. Everything else will be taken and sold for the benefit of your creditors.

  • Ordinary clothing
  • Necessary household property (such as furniture and appliances but not antiques or items of exceptional value)
  • Tools of trade up to the prescribed limit ($3,800 as a May 2020 – go to and select indexed amount for the latest amount)
  • A car worth no more than the prescribed amount ($8,000 as of May 2020– go to and select indexed amount for the latest amount)
  • Superannuation (still in your super fund)
  • Life insurance policies
  • Payments from life insurance or superannuation received on or after the date of the bankruptcy. Payments received before the date of the bankruptcy are not protected!
  • Compensation received directly by you for personal injury (or property purchased almost entirely with compensation money).


Some of the main disadvantages of bankruptcy are:

  • Property/Assets taken – Most of your assets (property you own) may be sold to pay your debts, including your home if you own or are paying off a mortgage (except Protected Property).
  • Money taken – If you have money over a modest amount on which to live ($1,000-$2,000) in a bank account or in cash, it will be taken to pay your debts.
  • Paying contributions – You may have to pay contributions towards your debts if your annual income is over a certain amount ($$59,031.70 (after tax) for a person with no dependents as at May 2020 – see for latest amount).
  • Not all debts included – You will not be released from all types of debt. For example, you will not be released from court fines, council rates, penalties and fines imposed by a court, most HELP/HECS-type debts and student loans, Child Support debts, family law maintenance payments or debts incurred by fraud. You will still have to pay these debts. You will also not be released from unliquidated debts (See below).
  • Employment Restrictions – You may not be able to continue working in some professions or licensed trades.
  • Overseas travel restrictions – You cannot travel overseas without the permission of your trustee in bankruptcy. You may have to surrender your passport. If you need to travel, you need to apply for permission and pay a fee.
  • Problems accessing credit, rental property and other services – Bankruptcy will be listed on your credit report for 5 years or 2 years from your discharge, whichever is longer, and will be listed on a public record (which can be searched for a fee) called the National Personal Insolvency Index forever. This will make it difficult for you to borrow money, particularly while the listing is on your credit report. It may also have an effect on your ability to rent property, access telecommunications and other services or purchase insurance.
  • Restrictions on borrowing and trading – you cannot borrow over a certain amount, accept goods on credit or hire purchase worth more than a certain amount, or offer to supply goods or services worth more than a certain amount without disclosing to the lender or customer that you are an undisclosed bankrupt ($5,882 as at May 2020– go to and select indexed amount for the latest amount)
  • Company director ban – You cannot be a director of a company or otherwise actively involved in the management of a company.
  • Money or property received while you are bankrupt may also be taken – If you inherit or win money or property while you are bankrupt it will be taken by the trustee in bankruptcy (up to the amount required to pay all your debts, interest and the costs of administering your bankruptcy – this can be much more than the total amount of your debts).
  • Limits on legal proceedings – You will not be able to take or continue legal proceedings without the permission of your trustee except in relation to personal injury to you or your family.

WARNING: Travelling overseas without the trustee’s permission is an offence under the Bankruptcy Act for which you may be prosecuted.


Some debts are not included in bankruptcy until they have been “liquidated” – liability admitted and the amount agreed upon (in writing or a judgment). The most common example is a debt arising from a motor vehicle accident – such as damages to another person’s vehicle. If you are considering bankruptcy and some of your debts are from an accident, or otherwise don’t arise from a contract (like a loan contract, for example), then you should get legal advice before going bankrupt.


Bankruptcy usually lasts 3 years and 1 day but can be extended in some circumstances to 5 or 8 years.  How long it lasts depends on whether you behave honestly (tell the truth about all your property and debts): abide by the rules and co-operate with your trustee. Your bankruptcy can also be extended for non-payment of income contributions.


You may continue paying secured debts in bankruptcy unless the trustee in bankruptcy decides to take and sell the asset (and repay the secured creditor). This will usually only happen when your equity in the asset is enough to cover the costs of the sale and provide a return for creditors. Your equity is the value of the asset (e.g. your home) less the amount owed to the secured creditor (e.g the amount of your mortgage). This can happen at any time both during bankruptcy and for a long time afterwards. Sometimes, where there is no equity in an asset the trustee will allow you to retain it (for example where your mortgage is almost the same as, or more then, the value of your home). Be aware that the home may still be sold later if the value goes up and/or the mortgage goes down. If the home has not been sold by the trustee by the time you are discharged from bankruptcy, you may be able to buy it back from the trustee.



You may own property with another person or other people (such as your spouse, de facto spouse or another family member). In this case the other owner(s) will be given the option to buy your share of the property from the trustee in bankruptcy. If the other owner(s) cannot afford to do this, the property may be sold and the other owner(s) will be refunded an amount reflecting their share.


A trustee in bankruptcy has extensive powers to look back in time to recover property you may have given away or sold for less than it was worth. You cannot simply give away property and then go bankrupt to avoid paying your creditors. Even innocent transactions, such as a large sum of money or property given to a family member when times were better, may be undone if it occurred in the years leading up to your bankruptcy. If you have given away money or property or sold property for less than it was worth, particularly in the last 5 years or so, you need to get legal advice before going bankrupt. Even transactions which occurred longer than 5 years ago can be challenged by the trustee if it can be shown you were trying to hide wealth from your creditors.


Whilst currently there is no minimum amount of debt required for a debtor to present their petition for bankruptcy the Official Receiver will have the discretion to reject a debtor’s petition if the Official Receiver considers that the debtor:

  • Would be able to pay the debts within a reasonable time; and either .
    • Is unwilling to pay one or all of his/her debts; or
    • Has been previously bankrupt on a debtor’s petition at least 3 times or at least once in the past 5 years.

WARNING: You should think very carefully before going bankrupt for very small debts because of the long term consequences.


Jodhi went bankrupt on a $5,000 credit card debt. Two years later she inherited $40,000 when her grandfather died. By then the cost of annulling the bankruptcy (paying debt including interest, plus all the expenses and fees of the trustee) was over $30,000, meaning that she got less than $10,000 from her inheritance.  She also found that she continued to have problems with getting pay TV services connected and getting further loans.


For most bankrupts, the process goes quite smoothly and they are discharged at the end of 3 years and 1 day. It is important to note, however, that there are offences associated with bankruptcy for which debtors may be prosecuted. Most offences relate to dishonesty or failure to tell the trustee about income or property. There is also an offence related to gambling or hazardous speculation, and another for incurring credit which it was clear you could not pay. Both relate to events that happened in the two years immediately prior to bankruptcy. If you are concerned about either of these issues, talk to your financial counsellor or get legal advice.


Declaring yourself bankrupt is not difficult but it is a big step with potentially serious consequences.

The Australian Financial Security Authority (AFSA) regulates bankruptcy, including processing the paper work and acting as the Trustee in Bankruptcy in some bankruptcies. You should also read the information AFSA provides at


It is strongly recommended you get free advice from a financial counsellor (you can find a financial counselling service near you by ringing 1800 007 007). If you are in NSW you can use our Find a Financial Counsellor Tool. You may have other alternatives. If you are sure this is the right course of action for you, proceed to step 2.


Most bankruptcy applications now have to be made online.  The AFSA website is found at and there are simple guidelines to take you to the correct part of the website. You must create an account with AFSA before you can begin filling in the Bankruptcy Form. AFSA requires you verify your name and contact details. You are also required to submit documents that prove your identity before you can proceed.

If you do not have access to the internet, you can request the Bankruptcy Form from AFSA by ringing 1300 364 785. AFSA will mail the documents to your postal address.

Financial Counsellors can also help you. Most financial counselling agencies have access to the paper version of the Bankruptcy Form and can assist you in completing the forms and advising you of any issues you may be encountering about the bankruptcy process.


Completing the online Bankruptcy Forms is relatively simple. You follow the prompts to answer the questions that relate to your situation. You must complete every question on the Bankruptcy Form. If a question is not applicable to your situation you must answer NO in the appropriate box. You will then be prompted to move to the next applicable question on the Bankruptcy Form.

You should list all your debts even though you may not be released from some of those debts. Not all debts are extinguished by your bankruptcy. You should call the National Debt Hotline on 1800 007 007 if you need specific advice on any of your debts. You must list all your assets even though you may believe the property is protected in bankruptcy. Include a note about why you think the property is protected. You will need to supply evidence.  Get advice if you are unsure if an asset is protected, or if you have enough evidence.


  • You will not have sufficient money to live on if you make all the monthly repayments you are required to make to your creditors;
  • You do not have assets that could be sold to repay the debts (for example you rent your home and your only other asset is a car worth under $8000, as at May 2020);
  • You have sought advice from a free and independent financial counsellor and explored other alternatives; and
  • You understand and can live with the restrictions that bankruptcy will bring now and in the future.

REMEMBER: If you earn over the prescribed amount you will need to pay income contributions during bankruptcy. The amount of income you can earn without having to pay contributions increases with each dependent you support.

WARNING: Beware anyone charging a fee for debt advice. They may offer to negotiate with your creditors, help you with bankruptcy or with alternatives to bankruptcy such as a Debt Agreement. Paying a fee will not help you when you are already in financial difficulty. Worse, these people are often not particularly skilled or qualified and can make your situation much worse.

You should know that you can get free, independent advice from an accredited financial counsellor by calling 1800 007 007 for a referral in any State or Territory.  You do not have to pay any money to go bankrupt.


If you are facing urgent enforcement action by your creditors (such as a garnishee which is not leaving you with enough money to live on, or the seizure of your essential household goods), but you are not sure if bankruptcy is for you, you can file a Temporary Debt Relief application, which is a temporary COVID-19 measure available for 6 months from 25 March 2020.  This will freeze all enforcement action for 6 months to give you time to get advice about bankruptcy.

Previously this application was called a Declaration of Intention to File a Debtor’s Petition, and froze all enforcement action for 21 days to give you time to get advice about bankruptcy.  This is likely to be reinstated once the COVID-19 measures expires but you should get advice at that time.

Unfortunately filing either a Temporary Debt Relief or a Declaration of Intention to Present a Debtor’s Petition is an act of bankruptcy and there is a risk that it will be used by your creditors to make you bankrupt even if you choose not to go ahead. This is a big risk if you own a house or assets.

Important Note: You can also try to stop the seizure of goods, or reduce the amount payable under a garnishee by making an application to pay by instalments. See our Fact Sheets: Making an Application to Pay by Instalments.


If you owe more than $5,000 (or $20,000 if you fall under the COVID-19 reprieve which runs for 6 months from 25 March 2020 onwards) and you are unable to pay your debts as they fall due (keep up with your repayments), your creditors may be able to force you into bankruptcy. You should get legal advice if you receive any of the following:

  • A statement of claim
  • A bankruptcy notice
  • A creditor’s petition.

See also our Fact Sheet: Help I’m being made bankrupt!

This is only a brief guide and it is recommended that you speak to a financial counsellor to discuss the best option for you in your circumstances. See Fact Sheet: Getting Help for a list of additional resources.

Last Updated: July 2020