Personal Insolvency Option

Personal Bankruptcy

Bankruptcy is a formal legal process under the Bankruptcy Act 1966: three years and one day, a trustee in control of your assets, and most unsecured debts released at the end. This page sets out what it takes from you, what it protects, and when an alternative leaves you better off.

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Understanding bankruptcy

What personal bankruptcy is, and what it isn't

The primary purpose of bankruptcy in Australia is to provide a legal process that releases you from unmanageable debts and gives you a fresh start. It is designed as a safety net to help individuals relieve the overwhelming stress of severe financial hardship, allowing them to rebuild both their financial stability and personal wellbeing. It is governed by the Bankruptcy Act 1966 and administered under the oversight of the Australian Financial Security Authority (AFSA). A bankruptcy trustee takes control of your financial affairs, deals with the creditors you owe money to, and manages your assets and income under the Act.

It releases you from most unsecured debts, stops most legal action against you, and imposes duties in return. There are two ways in: voluntary bankruptcy, where you apply yourself, and involuntary bankruptcy, where a creditor obtains a court order. In a voluntary bankruptcy, no court is involved at all, and no one needs to declare you unable to pay your debts. You are declared bankrupt at the moment AFSA accepts your statement of affairs.

The essentials
How long it lasts
Three years and one day from the date AFSA accepts your statement of affairs. Not from the date you lodge it.
Can I keep working?
Yes. Bankruptcy places no restriction on employment. Only income above an indexed threshold attracts compulsory payments, reassessed by your trustee each year.
My house and car?
Household goods, tools of the trade, and a motor vehicle up to a certain value are protected, with the vehicle limit measured against your equity rather than the car’s value. Your interest in a home is not protected and vests immediately.
Does creditor action stop?
For most unsecured debts, yes. Debt collectors and enforcement stop, and unsecured creditors deal with your trustee instead of you. Secured creditors keep their rights over the security.
How it starts

How bankruptcy begins, and who administers it

Two ways in, and one choice most people make by default without knowing they made it.

01

Voluntary bankruptcy

You lodge with AFSA. No court, and no filing fee.

You apply yourself, lodging a bankruptcy form and a statement of affairs with AFSA. Presenting the petition is itself an act of bankruptcy, so it isn’t a step to take while you’re still testing alternatives, but the timing and the preparation are yours, and that is the whole advantage of going first.

02

Involuntary bankruptcy

A creditor petitions the court. Timing and trustee stop being yours.

A creditor cannot go straight to making you bankrupt. They must first sue you and obtain a judgment for at least the statutory minimum, then apply for a bankruptcy notice, which gives you 21 days to comply. Only if you fail to comply can they petition the court, which then issues a sequestration order. Each of those stages is a point at which the position can still be resolved, which is why the date to act on is the one on the notice, not the hearing date.

03

The Official Trustee or a private registered trustee

Made on the statement of affairs, and forfeited by default.

Every bankrupt estate has a trustee: the Official Trustee, which is AFSA itself, or a private registered trustee. A private trustee gives you a named practitioner for the judgement calls that carry real money: how equity in a home is dealt with, whether an income contribution is assessed, whether an asset is worth realising. The choice is exercised on the statement of affairs and requires the private trustee’s signed consent lodged with it. Lodge without that consent and the Official Trustee is appointed automatically. In a straightforward estate with no assets, that is a perfectly adequate outcome.

The consequences of bankruptcy

A fresh start, but only when it's the right one

Whether bankruptcy suits you turns on the ratio of your assets to your income, not on how bad the position feels.

When it fits

Few realisable assets, income at or below the contribution threshold, and unmanageable debt that is mostly unsecured and provable. You get a fixed end date instead of open-ended enforcement, and creditors deal with your trustee from that date forward.

When it doesn't

Equity in property to pay all your creditors, complex business and family structures, or debts a creditor would accept a lump sum against. A personal insolvency agreement under Part X carries no income, asset or debt limits. A Part IX debt agreement does, but costs less to run.

When it makes no difference

Bankruptcy does not touch child support, court fines, or HELP, HECS and SFSS debt, and it does not release debts incurred after it begins. If that describes most of what you owe, bankruptcy will not solve your problem, and we will tell you so on the first call.

Common Questions

What people ask us first

If yours isn't here, just ask on your first call.

Will I lose everything I own?+
Household goods, tools of trade, a motor vehicle up to a certain value and most compensation for personal injury are all protected. The vehicle limit works on equity, so where the car is financed, only your share counts towards it. Property with equity is the exposure, and it is a different conversation from the one most people arrive expecting.
Will I ever get credit again?+
Two records get confused here. Your bankruptcy stays on the National Personal Insolvency Index permanently. Your credit report is a separate record held by credit reporting agencies, and bankruptcy stays on it for the later of 5 years from when it began and 2 years from when it ended. Lenders read the credit report, so access to credit generally returns well before the register entry does, which it never does. When you are already trapped under unmanageable debt, your credit rating is usually damaged or actively declining through missed payments, defaults or court judgments. At that point, trying to protect a credit score that is already broken is often a losing battle. Bankruptcy is not only a loss. It is a legal mechanism that clears most unsecured debts, halts mounting interest, and creates a structured path to rebuild your financial life and your credit rating.
Can I travel overseas while I’m bankrupt?+
Not without your trustee’s written consent, and consent can be refused. It is the only formal option that restricts travel. Leaving or attempting to leave without consent is an offence and also grounds for your trustee to object to discharge, which extends the bankruptcy to five or eight years.
Should I talk to a free financial counsellor first?+
Often, yes. For smaller debts or a temporary cash-flow problem that is the right first call, and the National Debt Helpline on 1800 007 007 will put you in touch with a financial counsellor at no charge. Where the debts are larger, or property or a business is involved, you will need a registered trustee as well, but the two are not alternatives, and free advice first costs you nothing.
Does bankruptcy wipe out everything I owe?+
Not all debts are provable, and the ones that aren’t survive discharge in full. Court fines, child support and student loans are not released, and debts incurred after the bankruptcy begins are yours. Anyone telling you otherwise is selling rather than advising.
Will I lose my house if I declare bankruptcy?+

Your interest in the home vests in your trustee as soon as the bankruptcy begins, automatically, including any share held in someone else’s name. Whether the trustee sells is discretionary and depends on the equity and the alternatives. Your interest does not return to you at discharge, and the trustee can deal with it for years afterwards. Get advice before you act.

How the trustee handles the home depends heavily on whose name is on the land title.

Sole owner. The trustee takes full control of the property. Where there is significant realisable equity, the trustee will sell the house to repay your debts and cover administration costs.

Joint owners, for example you and a spouse. Your bankruptcy breaks the joint tenancy, and the trustee takes over your share of the equity. The trustee will usually offer your non-bankrupt partner the first opportunity to buy out your share, to avoid a public sale.

A co-owner who will not sell. Where your partner cannot afford to buy out your share and refuses to sell, the trustee can apply to the court to force the sale of the whole property in order to realise your share.

Is a debt agreement the same as bankruptcy?+
No. A debt agreement under Part IX is a binding arrangement to pay creditors what you can afford, and you do not become bankrupt. It is still a formal insolvency, still on the National Personal Insolvency Index, and proposing one is an act of bankruptcy. Eligibility requires insolvency, no insolvency in the previous ten years, and income, assets and debts below limits set by the Act.
Does bankruptcy clear ATO tax debt and Director Penalty Notices?+
Most tax debt is a provable, unsecured debt, so it is generally addressed in bankruptcy. A Director Penalty Notice makes company tax debt your personal debt, and once personal, that debt is provable in bankruptcy and extinguished by it. That holds even where the notice issues after the bankruptcy date for a pre-bankruptcy company liability. That is not a loophole, and there is often a better way to deal with the company’s liability first. Personal guarantees work the same way: company debt becomes personal debt, so both halves need looking at together. If the company is the more urgent half, start with our business and company insolvency advice.
Why Rapsey Griffiths

Real people, on your side, when it matters most

At Rapsey Griffiths, you'll deal with the people whose name is on the door: Mitch Griffiths and Chad Rapsey, Founders. Between them, Mitch and Chad bring decades of experience in restructuring and personal insolvency, and a calm, straight-talking approach that helps people understand exactly where they stand.

The Bankruptcy process is stressful and isolating, and it is rarely just about money. An experienced financial counsellor will tell you where you stand, what it would really cost you, and whether an alternative fits you better, without judgement and without jargon. Where a property or family law issue is involved, you may also need independent legal advice, and we will make that clear.

Mitch Griffiths and Chad Rapsey, Registered Trustees in Bankruptcy
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