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How Do You Declare Bankruptcy?

Rachel Horan

Rachel Horan

June 8, 20215 minute read
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Declaring bankruptcy can be one of the most severe financial situations a person finds themselves in. Unfortunately, sometimes it is unavoidable and must be considered as a way to gain control of unmanageable debt.

On this page:

    In this guide, we explain what bankruptcy is, how you declare bankruptcy and the lasting implications of this.

    What is bankruptcy?

    Bankruptcy is the legal process in which you are declared unable to pay your debts, either voluntarily or by a third party. In Australia, declaring bankruptcy is governed under the Bankruptcy Act of 1966 and regulated by the Australian Financial Security Authority (AFSA).

    There are two ways of entering bankruptcy. You can enter into voluntary bankruptcy by completing and submitting a Bankruptcy Form. Alternatively, a creditor that you owe debt to can make you bankrupt through a court process called a sequestration order. In order for a third party to declare you bankrupt, they must have made sufficient attempts to get you to repay your debt, and you must owe them at least $5,000.


    Important note!

    Typically, bankruptcy lasts for three years and one day. You will be appointed a trustee that looks after your affairs for the entire duration of your bankruptcy.

    What is the process of going bankrupt?

    There is no minimum or maximum amount of debt you must have to be eligible for declaring bankruptcy. However, there are two requirements:

    • You are unable to pay your debts when they fall due (insolvent);
    • You are currently in Australia or have a residential or business connection to Australia.

    When you become bankrupt, you will be appointed a trustee that manages your bankruptcy. You will also be required to:

    • Provide details of your debts, income, and assets to your trustee;
    • Your trustee notifies your creditors that you are bankrupt, preventing them from contacting you further about outstanding debts;
    • Your trustee can sell certain assets to help repay your debts;
    • You could be required to make mandatory payments if your income exceeds a certain amount, or you have obligations not covered under bankruptcy.

    What are the implications of declaring bankruptcy?

    Bankruptcy can have severe and long-term consequences on not only your finances, but other aspects of your life. In addition to having a trustee that manages your affairs, other implications of declaring bankruptcy include:

    • Your income;
    • Employment and business;
    • Other debts;
    • Ability to travel overseas;
    • Ability to obtain future credit;
    • Your right to continue legal action;
    • Name is listed on the National Personal Insolvency Index (NPII).

    Income, employment, and business

    If you earn over a certain amount, you might need to make compulsory payments. You must inform your trustee of any changes to your income or employment, including if you:

    • Change jobs;
    • Receive a higher or lower income;
    • Stop working.

    During your bankruptcy, you might face limitations when it comes to employment. For instance, you’re not able to be the director of a company without permission of the court. In addition, you can’t manage a trust account (e.g. a solicitor or accountant), there may be limitations if you are a sole trader, and you may not be able to hold certain positions.

    You might not be released from all debts

    If you have only unsecured debts, you will likely be released from all of your debt. However, there are exceptions in which you may not be covered under bankruptcy. In particular, you will need to confirm with your creditor to see if your bankruptcy will cover the following:

    • Centrelink debts;
    • Australian Tax Office (ATO) debts;
    • Victims of crime debts;
    • Toll fines.

    In all circumstances, a bankruptcy will not cover the following:

    • Court imposed penalties and fines;
    • Child support and maintenance;
    • Student support loans (HECS and HELP);
    • Debts you incur after your bankruptcy commences;
    • Unliquidated debts (e.g. if you are unable to determine the amount owed).

    Ability to travel internationally

    If you wish to travel overseas, you will be required to request permission from your trustee. It is a criminal offence to travel internationally without the consent of your trustee in writing. If you need to travel overseas, your trustee may ask for additional information to consider your request. However, if they deny your request, you will not be allowed to travel overseas.

    National Personal Insolvency Index (NPII)

    When you are declared bankrupt, you will be listed on the NPII permanently. The NPII is a searchable public register listing all insolvency proceedings in Australia. Your personal information will appear on this index, which can include the following:

    • Name, date of birth, residential address, and occupation as disclosed on your application;
    • Any previous names or aliases;
    • The type of proceeding, the state date, and the AFSA administration number;
    • The name and details of your appointed trustee or administrator;
    • The current status of the proceeding (e.g. if you are currently bankrupt, discharged from bankruptcy).

    Future credit

    As bankruptcy will appear on your credit report, it can affect your credit score. In addition, if you apply over a certain amount of credit, you must inform the creditor that you are bankrupt.

    Your bankruptcy will appear on your credit report for:

    • Five years from the date you become bankrupt;
    • Two years from when the bankruptcy ends (whichever is later).

    Your trustee could sell your assets

    Your trustee can sell some of your assets, including your house and other property, to settle your debts. However, you are able to keep:

    • Ordinary household goods;
    • Up to a certain valued amount of tools to earn an income;
    • Vehicles with a value up to a set amount.

    You must declare all of the assets you have when you apply for bankruptcy, and any that you obtain during your bankruptcy.

    Ability to continue legal action

    You will need to inform your trustee if you are currently involved in any legal action. If you have a pending court case, you may need to contact the court to confirm whether you are still required to be present.

    Helpful resources

    If you are considering applying for bankruptcy, it’s recommended that you speak to a financial counsellor first. Moneysmart has a list of free financial counselling resources available. If you’re needing legal advice or facing legal action, you can get free legal advice.

    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.

    Rachel Horan
    Rachel Horan

    Written by Rachel Horan

    Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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