What is bankruptcy?

Bankruptcy is a legal process where you're declared unable to pay your debts. It can release you from most debts, provide relief and allow you to make a fresh start.

You can enter into voluntary bankruptcy. To do this you need to complete and submit a Bankruptcy Form. It's also possible that someone you owe money to (a creditor) can make you bankrupt through a court process. We refer to this as a sequestration order.

Bankruptcy normally lasts for 3 years and 1 day.

At AFSA, we manage the bankruptcy of individuals. If you need information about an insolvent company, contact the Australian Securities Investments Commission (ASIC).

Bankruptcy trustee

When you become bankrupt we appoint a trustee. A trustee is a person or body who manages your bankruptcy.

This can either be the Official Trustee (AFSA) or a registered trustee. You can also nominate a registered trustee of your choice.

Your obligations

When you are bankrupt:

  • You must provide details of your debts, income and assets to your trustee.
  • Your trustee notifies your creditors that you’re bankrupt - this prevents most creditors from contacting you about your debt.
  • Your trustee can sell certain assets to help pay your debts.
  • You may need to make compulsory payments if your income exceeds a set amount.

Before entering bankruptcy

Seek help

Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide help with your financial situation and talk about your options to deal with unmanageable debt. 

To speak with a free financial counsellor contact the National Debt Helpline on 1800 007 007.

For more information on financial counsellors and other support services see Where to find help.

Know your options

Bankruptcy is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include temporary debt protection for 21 days reprieve from creditors enforcing a judgment against you, a debt agreement or a personal insolvency agreement.

For more information see What are my options?

Understand the consequences of bankruptcy

Bankruptcy may have a serious impact on you. It may affect your ability to get credit, travel overseas or gain some types of employment.

For more information see Consequences of bankruptcy.

Case study: Mei Ling and Matt

A fresh start after bankruptcy

Mei Ling and Matt are a married couple who rent a flat in Gosford NSW. Both worked full time until two years ago when Matt lost his job. Mei Ling now works part time earning less than $40,000 per year.

For two years they tried to survive on Mei Ling’s wage, struggling to make repayments on their overdue credit cards and loans. They ended up with unsecured debts of over $65,000.

The only assets they owned were a car worth $5,000 and general household goods (fridge, couch, bed, etc).

The pressure from their creditors became too much to handle. Debt collectors and process servers were constantly calling on them. Their electricity was turned off a few times and they stopped answering phone calls because it always seemed to be bad news. Matt’s health was also suffering and he was treated for depression. Most nights Mei Ling would end up in tears thinking about their situation.

They finally decided to see a financial counsellor. There was no charge for this service. The financial counsellor looked through their finances and suggested they consider filing for bankruptcy.

Matt and Mei Ling went home and looked in detail at the AFSA website. They read all about their options and the consequences of bankruptcy. The AFSA website showed that they would be able to keep their car because it was worth less than the set amount. They read they could also keep their household goods. In the end, they decided that bankruptcy would be the best option for them.

After downloading and completing the Bankruptcy Form, they lodged it with AFSA. There was no fee to apply for bankruptcy.

Bankruptcy is not the right option for everyone, but for Matt and Mei Ling it provided a way out of their debt crisis. They made a fresh financial start and regained control over their lives. This provided enormous relief to the couple. Matt was able to stop worrying about debt and find a new job.

Their bankruptcies ended 2 years ago. They continue to regularly see a financial counsellor and they keep to a budget. This keeps their finances under control so they do not find themselves in the same position in the future.

Their new budget also allows for some savings to be put aside from their income and for the first time in 10 years, Mei Ling and Matt are planning an overseas holiday in the not too distant future.

*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.