What happens to my debts when I’m bankrupt?

If you enter bankruptcy, you will find that most debts are covered. This means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments[?] to help pay your debts.

Read on to understand which debts bankruptcy covers and if you still need to pay certain types of debts.

Which debts does bankruptcy cover?

Unsecured debts

An unsecured debt is not tied to specific property, like a house.

Bankruptcy covers most unsecured debts, such as:

  • credit and store cards
  • unsecured personal loans and pay day loans
  • gas, electricity, phone and internet bills
  • overdrawn bank accounts and unpaid rent
  • medical, legal & accounting fees.

Bankruptcy releases most of these debts when it ends.

In some cases, you may need to confirm with the creditor to see if bankruptcy covers the following:

  • Centrelink debts
  • Australian Taxation Office debts
  • victims of crime debts
  • toll fines.

Bankruptcy doesn't cover all debts, including:

  • court imposed penalties and fines
  • child support & maintenance
  • HECS & HELP debts (government student loans)
  • debts you incur after your bankruptcy begins
  • unliquidated debts (e.g. a debt where you and your creditor are yet to determine the amount).
    Note: If you require assistance to liquidate a debt we suggest you seek financial or legal advice.

This means you are still liable for these debts. You need to contact your creditors directly to discuss payment options.

The debt comparison table shows which unsecured debts bankruptcy will cover.

Secured debts

A secured debt is tied to specific property, like a house. The creditor has the right to take possession of your property if you don’t make the payments. If this occurs you must assist with this recovery action.

Some examples are:

  • mortgage (house is security)
  • car loan (car is security)
  • hire purchase or rent to buy (eg. furniture or electronics as security).

You need to contact your secured creditors to discuss your intentions with the debt. If you’re unable to maintain the payments, you may be able to surrender the goods. Sometimes the creditor may sell the goods, however it still doesn't cover what you owe.

We call this a shortfall. You can list the shortfall in your bankruptcy, then the creditor can no longer pursue you for this debt.

Joint debts

A joint debt is a debt you share with another person. Normally if one person enters bankruptcy, the other person on the loan documents becomes 100% liable for the debt. If both people are bankrupt, they should include the debt in each bankruptcy.

If you have a guarantor for a loan (e.g. your parent), normally the guarantor becomes 100% liable for the debt.

Company debts

If you are a sole trader you can list your debts in the bankruptcy. For any other insolvent company debts and enquiries, contact the Australian Securities & Investments Commission.
However, if you are a personal guarantor for company debts, you can include these in your bankruptcy.

Overseas debts

Debts you incur overseas are covered in your Australian bankruptcy. This means your creditors can't pursue for that debt in Australia. However, your overseas creditors can pursue you for the debt if you travel back to that country.

This applies during and after your bankruptcy. You must include any overseas debts in your bankruptcy application.

Direct debits

It's your responsibility to cancel any direct debits you have set up with your bank. It is best to speak to your bank directly if you want to stop a direct debit.

For more information about how your debts are paid in bankruptcy see: How are my debts paid?

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