When you are made bankrupt in Australia you will be released from all of the debt that you have. There are a couple of consequences to this happening and that is something that we will discuss soon. For now though I do wish to highlight the two situations in which you can be made bankrupt in this country:

    • If you find that you have a debt that you cannot repay, and it can be of any amount, then you will be able to make yourself voluntarily bankrupt. This will automatically discharge you of any debt that you may have and could potentially give you a fresh start with your financial situation. When you are made voluntarily bankrupt you will be assigned a representative of the Australian Financial Security Authority (AFSA) who will act as a trustee and deal with your financial situation. Depending on the amount of assets that you own you may have to pay a fee for this service.


  • The most ‘common’ way to be made bankrupt is when a group of companies who you owe money to totaling over $5,000 and who have tried to recover cash from you to no avail will make a claim to make you bankrupt in a bid to get the money that you owe them back. This is quite an expensive form of bankruptcy as quite often a private trustee will be appointed for managing your financial debt and the cost of this could be quite high. If you can avoid it then it will be much better for you in the long run.

How does Bankruptcy Impact You in the Short Term?

Many Australians incorrectly believe that bankruptcy is the best way in which to deal with extreme debt issues. However this idea could not be further from the truth. Sure, there are a few people out there who will get a ‘fresh start’ when declaring bankruptcy, there are many more out there who will have their life severely impacted for at least seven years, in some cases the ramifications of declaring bankruptcy may stretch far beyond this and could have an impact for a significant portion of your life. It is important that you try every possible solution before bankruptcy is declared. The vast majority of companies will be more than happy to work with you if you have some sort of debt consolidation in place as it means that they do have a chance of getting at least some of the money that you owe them back.

The vast majority of people who are made bankrupt will have difficulty applying for credit for at least seven years (as this is the length of time that bankruptcy will remain on your credit report), you could also lose a number of your assets (more on that soon), and your ability to be employed in the future may also be severely hampered.

Bankruptcy does have both advantages and disadvantages. It is worth knowing what they are before you determine whether this is the right course of action for your own personal situation.

What is the Impact on Debts and the Personal Life of Somebody who is Made Bankrupt?

As mentioned before, your bankruptcy will be recorded on your credit report. It will also be added to the ‘National Personal Insolvency Index’. It will appear on the former for at least seven years, and it will stay on the latter for life. However it is worth noting that most lenders will only really pay attention to your credit report, although there are a few out there who will also look into the National Personal Insolvency Index in conjunction with this. Bankruptcy will remain on your credit report for 2 years longer than any bad debt that you may have. This is another reason as to why you should try and sort out the situation as opposed to just dealing with bankruptcy.

If you have an income of over $52,543.40 and you have zero dependents (the income level is slightly higher when you have dependents) then you will be asked to pay some of this income to your assigned trustee who will then utilize the cash to pay off any debts that you may still have with your creditors. It is worth noting that some debts will not actually be eradicated. These include:

  • Court Fines
  • Any educational debts (Centrelink etc.)
  • Court Fines
  • Child Support

You will continue to pay these as you did before you declared bankruptcy. The rest of your creditors will be dealt with my your assigned trustee.

In the next section we will discuss the potential of losing some of the assets that you may own.

Impact on Assets When you are Made Bankrupt in Australia

It is worth noting that the values listed here are correct as of the 10th June 2014. Depending on when you read this the asset value limit may have gone up or down.

When you are declared bankrupt your assets will come under ‘threat’. Some of your assets will be safe from being used to pay off the debts that you owe, but there also a few which you will most likely end up losing.

Assets That Are Guaranteed to be Safe:

  • You will be able to keep all life insurance policies and personal injury compensation that you have received.
  • You are able to keep money in your bank account up to a value of $1,000. Anything over this has the potential to be taken and used as a way in which to pay off your creditors.
  • If you have a car with a value of less than $7,350 then you will be able to keep it.
  • If you have tools which are required for work that are personally registered to you then you will be able to keep them providing the total value is less than $3,600. If the value is higher than this then you may be asked by your assigned trustee which tools are most required for your position. They will do everything in their power to ensure that you are able to keep as many tools as possible should they be over this value.
  • You will be able to keep household goods over a certain amount PROVIDING they are necessary for living. This could include electrical items like your television and computer. It may also apply to furniture. Basically, if the item would need to be replaced when removed from your property then it is likely you will be able to keep it.

Assets That Can be seized to Pay off Debt

There are a number of assets that the trustee will be able to seize when it comes to paying off any outstanding debts. The assets that they seize will actually depend on the size of your debts. Obviously they will not seize your property if your debts are $5,000 because you will most likely be able to pay that off by selling other assets:

  • All property which is higher than the values listed in the previous section is at risk of being lost. This includes vehicles and tools of the trade.
  • In severe cases of debt you may lose your house and land.
  • Any items that you don’t actually need for living. This includes luxury items such as a games console, sound system, DVD player etc. You may also find your antiques and jewelry taken in order to pay off debts. Not all of your jewelry will be taken.
  • Any inheritance you are entitled to.
  • Any winnings you have obtained from any source (lottery etc.)
  • Any tax refund you may be due.
  • All cash in your account over the value of $1,000. This limit is subject to change however at the time of writing $1,000 was the determined value that would be required to live on and thus you will be left with that at the very minimum.

Impact on Employment

As mentioned previously, you may also find that your employment status is impacted as a result of bankruptcy. It can be impacted in one of two ways:

  • You will not be able to be involved with management of a company or act as a director whilst you are bankrupt. This limitation can be eradicated with the permission of the courts.
  • If you are a member of a professional trade association then you may find that your membership is under threat should you be impacted by bankruptcy. It is worth consulting the terms and conditions of your membership to ensure that this does effect you.