What is bankruptcy?

Bankruptcy is a legal process that can release you from most debts, provide relief, and give you the chance to make a fresh start.

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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 apply for voluntary bankruptcy. To do this, you need to complete and submit both a Debtor's Petition form and a Statement of Affairs form.

You can apply to become bankrupt:

  • as an individual
  • jointly with someone else
  • as a member of a partnership.

It's also possible that someone you owe money to (a creditor) can make you bankrupt through a court process. This is referred to as a sequestration order.

Bankruptcy normally lasts for 3 years and 1 day.

At AFSA, we manage the bankruptcy of individuals, including joint and partnership applications. We do not manage corporate insolvency matters. If you need information about corporate insolvency, contact the Australian Securities Investments Commission (ASIC).

Download the information sheet

Find out how to apply for bankruptcy.

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 – a qualified insolvency professional who is registered with AFSA.

You can ask a registered trustee to manage your bankruptcy. If you don't nominate one, or the trustee does not agree, the Official Trustee (AFSA) will initially be your trustee. The trustee can change at any point during your bankruptcy. All trustees charge fees, which is generally recovered from any money in the bankrupt estate.

Search for a trustee on AFSA's Register of Trustees

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 advice about your financial situation and discuss options for dealing 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 1966 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: 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 2 years ago when Matt lost his job. Mei Ling now works part time earning less than $40,000 per year.

For 2 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 completing their respective Debtor's Petition and Statement of Affairs forms online, they submitted them to 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.

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.

Where to find help managing debts Income and employment Apply for bankruptcy Consequences of bankruptcy