If you are struggling with debt and considering bankruptcy, you are not alone. With the post-pandemic cost of living crisis, many Australians are facing financial challenges.
Bankruptcy can seem daunting, but for some, it is a necessary step toward regaining control of their finances. Our team at BRI Ferrier insolvency firm Australia is here to help, offering expert guidance through financial difficulties, including bankruptcy, so you can understand your options and choose the best way forward.
What is bankruptcy?
Bankruptcy is a legal process that helps you regain financial control by releasing you from most of your debts. The Australian Financial Security Authority (AFSA) defines bankruptcy as a legal process where you are declared unable to pay your debts.
Entering bankruptcy can provide relief from creditors and give you a chance to rebuild your financial life.
Is bankruptcy the right option for me?
It is important to think about whether applying for bankruptcy is the best course of action for your circumstances before making that decision.
The following are indications that applying for bankruptcy may be a worthwhile option:
- You are unable to pay your bills on time
- You are relying on credit cards to cover basic living expenses
- You are receiving constant calls or letters from debt collectors
- You are considering borrowing money from friends or family to pay debts
- You are facing legal action from creditors
What causes bankruptcy?
Bankruptcy can happen for a variety of reasons, and it is not always due to poor financial management.
Many people find themselves facing bankruptcy because of unexpected circumstances that are beyond their control. Some of the most common causes include:
- Job loss or reduced income: Losing a job or experiencing a significant reduction in income can make it difficult to keep up with financial obligations, leading to debt.
- Medical expenses: Medical bills can pile up quickly, especially if you do not have adequate health insurance, putting a strain on your finances.
- Divorce or separation: The financial strain of divorce, legal fees, and the division of assets can cause significant financial distress.
- Business failure: Entrepreneurs and business owners may face bankruptcy if their business fails, leaving them with debts they cannot repay.
- Excessive use of credit: High credit card balances or loans can quickly spiral out of control if not managed carefully.
- Unexpected life events: Situations like natural disasters, the death of a family member, or other unforseen events can disrupt financial stability.
Understanding the root cause of your financial difficulties is key to making informed decisions about how to move forward.
Looking at how you got here may help you assess whether bankruptcy is the right solution or if other options may be available to get back on track. Our professional team at BRI Ferrier can support you through this. From identifying the cause of financial problems to providing key services for recovery, we will help you regain control of your financial situation.
How long does bankruptcy last in Australia?
In Australia, the standard bankruptcy period is three years and one day from the date your bankruptcy is accepted. However, the effects of bankruptcy can last longer than this initial period.
Your bankruptcy will be recorded on the National Personal Insolvency Index (NPII) permanently, and it will appear on your credit report for five years from the date you became bankrupt or two years from when your bankruptcy ends, whichever is later.
Having a record of bankruptcy can impact your ability to borrow money, apply for a rental property, or get approval for some types of employment.
While the credit listing will eventually drop off, the NPII listing remains as a formal record of your insolvency history.
What is a trustee?
When you become bankrupt, a trustee is appointed to manage the process and ensure that your obligations to creditors are met.
The role of the trustee is essential, as they act as a neutral party responsible for overseeing your bankruptcy and ensuring that all legal requirements are followed.
The responsibilities of the trustee include:
- Investigating your financial affairs: They review your financial history to determine what led to bankruptcy and what assets or income are available to repay creditors.
- Selling certain assets to pay creditors: Depending on the situation, they may sell non-essential assets to help cover your debts.
- Collecting income contributions if you earn over a certain threshold: If your income exceeds a specific limit, you may need to make contributions toward repaying creditors.
- Reporting to creditors on the progress of your bankruptcy: The trustee keeps creditors informed of how your bankruptcy is proceeding, including any repayments or asset sales.
In Australia, your trustee can be either the Official Trustee, who is part of the Australian Financial Security Authority (AFSA), or a registered private trustee.
The choice between them may depend on the complexity of your case and your personal circumstances. The trustee plays a vital role in ensuring fairness to both you and your creditors during the bankruptcy process.
How can a person become bankrupt?
There are two main ways to enter bankruptcy in Australia:
- Voluntary bankruptcy: You can choose to declare yourself bankrupt by submitting a Bankruptcy Form to AFSA.
- Forced bankruptcy: A creditor can apply to the court to make you bankrupt if you owe them $10,000 or more and have committed an "act of bankruptcy". Common acts of bankruptcy include failing to comply with a Bankruptcy Notice, trying to avoid your debts (hiding assets, leaving the country, or refusing to deal with creditors), admitting in writing that you cannot pay your debts, having assets seized by a court, or entering into an arrangement with creditors that falls through—for example, if you try to settle your debts outside of court but the agreement fails.
What do you need to do before declaring bankruptcy?
Before you take the step of applying for bankruptcy, consider these important actions:
Step 1: Seek financial counselling: A financial counsellor (or a registered trustee) can help you understand your options and may suggest alternatives to bankruptcy.
Step 2: Review your debts and assets: Make a comprehensive list of what you owe and what you own.
Step 3: Understand the consequences: Be clear about how bankruptcy will affect your life, including employment restrictions and limitations on future borrowing.
Step 4: Explore alternatives: Consider a debt agreement or personal insolvency agreement as potential alternatives to bankruptcy.
Step 5: Talk to our team at BRI Ferrier: We specialise in bankruptcy and insolvency, providing personalised guidance to help you decide if bankruptcy is the right path. Our team will support you through the process, ensuring you understand your options and have a clear way forward.
What is the bankruptcy process?
If you decide to voluntarily apply for bankruptcy, here is a general outline of the process:
- Complete the necessary forms: You will need to fill out a Bankruptcy Form, either in paper or online.
- Submit your application: Lodge your forms with AFSA.
- Appointment of a trustee: You can choose your own Trustee, or AFSA will appoint a trustee to manage your bankruptcy. If you wish to choose your own trustee, their consent to act must be filed in your Bankruptcy Form.
- Notification of creditors: Your trustee will inform your creditors of your bankruptcy.
- Asset assessment: Your trustee will assess your assets and may sell some to pay creditors.
- Income contributions: If you earn over a certain threshold, you may need to make compulsory payments to your trustee during the bankruptcy.
- Discharge: Unless there are circumstances that call for an extension, you are typically released from bankruptcy after three years and one day.
Do you still need to pay off your debt if you become bankrupt?
One of the main benefits of bankruptcy is that most unsecured debts are released. This means you are no longer legally required to pay these debts. However, some debts are not covered by bankruptcy, including:
- HECS/HELP debts
- Child support and maintenance
- Court-imposed fines and penalties
- Debts incurred by fraud
You should discuss your specific debts with your trustee or a financial advisor to understand which will be covered by bankruptcy.
Can I keep my car or house in bankruptcy?
It depends, but your interest in your house will likely be sold. For the most part, in bankruptcy, you are allowed to keep:
- Ordinary household furniture and appliances
- Tools of trade up to a certain value (this figure is updated annually on 1 July)
- A vehicle up to a certain value (this value is set annually by AFSA. As of July 2025, that allowable value is $9,600.)
Your trustee may sell these assets to satisfy creditors if you own a car or home with a sizable equity that is worth more than the permitted amount.
If you own a home, it could also be sold. This can get complicated, especially if you own the property jointly with someone else. You should seek professional advice about your circumstances to understand how your house is likely to be treated if you go bankrupt.
Where can I find help?
Navigating bankruptcy can be complex and emotionally challenging. At BRI Ferrier, we understand the stress you are under, and we are here to help. Our team of experienced professionals can guide you through the bankruptcy process, help you understand your options, and support you in making the best decision for your financial future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.