How are my debts paid?

Find out more about what happens to your debts in bankruptcy. 

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Do my debts get paid?

Your debts are not usually paid in full when you are bankrupt. Your trustee can pay some of your debts using any available proceeds from the following:

  • sale of your assets
  • compulsory payments (if you earn over a set amount).

Do I still have to pay my debts?

It depends on the type of debt. Most unsecured debts such as credit cards and utility bills are covered in bankruptcy. This means you won't need to continue payments.

If you have a secured debt and want to keep that item, for example a car under finance, you will still have to pay that debt. If you are unable to pay your secured debts, you must surrender the secured items back to the creditor.

Secured car debts in bankruptcy

Ben is a 31-year-old delivery driver. They live in Launceston, Tasmania and earns $55,000 per year. They have credit card debts of about $48,000.

Ben is paying off a 2011 Holden Combo van worth $10,000. To buy it, they borrowed money from Island Bank, who registered a security over the van on the Personal Property Securities Register. Ben currently owes Island Bank $9,000.

Ben finds their debts crippling. They have done some research and thinks bankruptcy would be their best option.

Before filing for bankruptcy, they complete AFSA's bankruptcy consequences tool and then creates an Insolvency Services account so they can apply online.

Ben’s main concern about going bankrupt is that they do not want to lose their van. They need this for their job. They do not want to put details of the van and the loan on their Bankruptcy Form. Ben rings AFSA to get more information. AFSA tells Ben that it’s important to list all their debts and assets on their Bankruptcy Form and there are penalties for not doing so. They also tell Ben that if they forget to include any debts, they must tell their trustee as soon as they becomes aware of them.

AFSA tells Ben that the trustee will decide whether to take their van based on its ‘equity’. The ‘equity’ is how much the van is worth, minus what is owed to the secured creditor (Island Bank). Ben’s van is worth $10,000 and they owe $9,000. The equity in their van is $1,000 which is below the limit*. In this instance, the trustee cannot claim the van. If they stop paying off the loan, however, Island Bank could repossess the van.

If Ben’s situation changes in the future and they can no longer keep up the loan payments, Ben could surrender the van to the bank. If this did happen, any money still owing on the loan would be covered by their bankruptcy, and Island Bank could not pursue Ben for the debt.

*The limit is updated each financial year. You can find the latest limits at Indexed Amounts.

Note: These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.

Can I still pay some of the debts?

You can make voluntary payments towards your debts during and after bankruptcy. Creditors can’t pursue you for the debt that bankruptcy covers. Some creditors though, may not provide services to you while the debt exists. 

For example: John has an electricity debt, and listed it on his bankruptcy. The electricity provider told John that he can't use them as a provider while he owes the debt. John decides to pay some of this debt to be able to continue using the electricity provider.

What happens to my debts? Assets that can be taken or sold Income and employment Indexed amounts