Bankruptcy is a legal process that releases you from your debts. If you have debts that you’re unable to pay, and you cannot come to suitable payment arrangements with your creditors, you might be thinking about becoming bankrupt.
Applying for bankruptcy is a major decision with 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 in your particular circumstances.
To apply for bankruptcy yourself, you must lodge a form with the Australian Financial Security Authority (AFSA). You can find the form and detailed information about bankruptcy at afsa.gov.au.
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What happens if I become bankrupt?
When you are declared 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 afsa.gov.au/resources/contact-lists/trustees-contact-list. If you do not choose a trustee, AFSA (the Official Trustee) is initially appointed to administer your estate. Your creditors may choose to take action to change the trustee at any time.
Your creditors are notified of your bankruptcy, and 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 (although you will be able to keep some types of assets)
- 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.
Other impacts of bankruptcy
Bankruptcy generally lasts for three years but can be extended in certain circumstances. 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. (For a full list of obligations and restrictions, visit afsa.gov.au/debtors/bankruptcy.)
After the period of bankruptcy, your bankruptcy is discharged and 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 that can be accessed by anyone for a fee)
- 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.