Bankruptcy, Insolvency & Debt: What Are Your Options?

Sub Editor · 20 January 2021
If you are unable to pay your debts, one option could be to declare bankruptcy. This decision can have serious consequences, however, so should not be taken lightly. Here’s an overview of bankruptcy and other insolvency options, plus support that may be available for unmanageable personal debt.

Thinking about ‘bankruptcy’ may lead to feelings of stress, anxiety and dread, particularly if you are already experiencing complex money problems, such as financial hardship. While declaring bankruptcy may provide some immediate relief in terms of your debts, there are long-term consequences to consider. Bankruptcy can trigger a domino effect that affects your credit score, chances of approval for loans and flexibility to travel.

So, is there a silver lining, and what could bankruptcy actually mean for you? In this article, we cover:

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 financial relief and allow you to make a new start, according to the Australian Financial Security Authority (AFSA), the government agency which regulates Australia’s personal insolvency system. Bankruptcy information and procedures in Australia rely largely on the Bankruptcy Act, which explains the legal requirements for debt agreements and personal insolvency agreements. For the recent reporting year of 2019–20, there were 12,450 bankruptcies in Australia, based on AFSA data.

Bankruptcy vs insolvency: what’s the difference?

Bankruptcy is different to insolvency, which is when you cannot pay your debts. Both individuals and businesses can become insolvent, and for individuals, declaring bankruptcy is a possible response to insolvency. For the recent reporting year of 2019–20, there were over 20,000 personal insolvencies in Australia, according to AFSA data. Businesses cannot declare or be declared legally bankrupt in Australia, but if you run a business as a sole trader or in a partnership, you or your partners can become bankrupt as individuals. 

Bankruptcy and alternative options

If you are experiencing financial difficulties, there are several different insolvency options available to you under Australian legislation. These include:

  1. temporary debt protection (TDP), which gives a 21-day protection period from being pursued by unsecured creditors so you can consider your options 
  2. debt agreements, which are binding agreements in which you pay sums you can afford to creditors
  3. personal insolvency agreements, where you pay agreed amounts to creditors in instalments or lump sums.
  4. bankruptcy, which can be declared either voluntarily or under a sequestration order, which is when a creditor obtains a court order that makes you bankrupt.

Before considering any of these options, you may want to speak with any creditors, such as your bank, and see what you can negotiate for outstanding debts. It may be possible to organise payment plans or debt relief. You could also try negotiating a lower interest rate for any home loans, personal loans or credit cards you have, and creating a budget that might help you work towards your financial goals.

What has changed with bankruptcy in Australia in 2021?

Various temporary changes to bankruptcy law that were introduced as part of the Australian Government’s economic response to the COVID-19 pandemic have stopped from 1 January 2021. The threshold for bankruptcy to be triggered has halved from $20,000 to $10,000 permanently. Before the pandemic, the amount was $5,000. The time available for temporary debt protection against creditors, as well as how long individuals have to respond to a bankruptcy notice, have both been cut from six months to 21 days.

What are the consequences of bankruptcy?

According to AFSA, bankruptcy can affect:

  • your income, employment and business
  • your ability to travel overseas
  • your ability to get credit in the future
  • your assets, such as your home if you own one
  • some, but not all, of your debts

If you declare or are declared bankrupt, a trustee (either a person or an entity) will manage your bankruptcy, and they will seek to ensure fair and reasonable outcomes for you and your creditors. The trustee may be able to claim and sell your assets and possessions, using the proceeds to repay money you owe. While a vehicle can be kept if its value is up to an indexed amount ($8,100 at the time of writing), a trustee can claim any houses or property you own as assets as part of proceedings.

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Am I eligible for bankruptcy?

There are two requirements to be eligible for bankruptcy, according to AFSA:

  1. You’ll need to be unable to pay your debts when they are due (so be insolvent)
  2. You’ll need to be present in Australia, or have a residential or business connection to Australia

Whether or not applying for bankruptcy is right for you will be a deeply personal decision if you have debt that’s not manageable. AFSA has an online tool you can use to assess your eligibility for bankruptcy. Just because you can apply for bankruptcy does not mean that this will be the right decision for you.

How do I apply for bankruptcy?

If you choose to apply for bankruptcy, you’ll need to submit a Bankruptcy Form using the Australian Government’s Insolvency Services portal. This portal is also used if you want to apply for temporary debt protection. More advice about how to apply for bankruptcy is available on the AFSA website.

How long does bankruptcy last?

Bankruptcy generally lasts for three years and one day from the date you are declared bankrupt. However, a trustee can submit an objection to extend a period of bankruptcy to either five or eight years under certain circumstances.

You don’t need to apply to be discharged from bankruptcy – it happens automatically. If you are declared bankrupt, your name will also be permanently listed on a public register, the National Personal Insolvency Index (NPII), which keeps track of personal insolvency proceedings in Australia. This means anyone will be able to pay a fee ($15 at the time of writing) to search the register and find out you are bankrupt or have been in the past. 

Can bankruptcy be ended early?

AFSA says you may be able to annul your bankruptcy and have it cancelled early in one of three ways:

  1. Paying off all your outstanding debts in full – this includes interest, realisations charges, and any expenses charged or incurred by your trustee
  2. Arranging a ‘composition’ with your creditors – this is a negotiated agreement in which they accept a final payment that’s less than your total debt
  3. Proving in court that you should not have been made bankrupt in the first place – AFSA recommends seeking legal advice about this option.

Where can I get financial and legal support with bankruptcy?

If you are in financial difficulty and are concerned you may be heading for bankruptcy, it is a good idea to seek advice. Free advice is available from a financial counsellor through the National Debt Helpline (NDH) on 1800 007 007. The NDH helps consumers find individual counsellors and organisations near to them. The NDH also offers information and resources on what your rights are if you are experiencing financial hardship.

Community legal services and legal aid agencies, as well as consumer credit legal services, may be able to help you if you need legal help to assist with bankruptcy matters. Free advice and support is available to eligible Australians, with services offered across states and territories in Australia. AFSA maintains a list of state and territory legal assistance services available to support Australians.

The National Self-Representation Service can also assist if you cannot afford legal representation, but need to attend Federal Court or Federal Circuit Court. The service is provided by LawRight in Queensland; Legal Aid WA in Western Australia; JusticeNet in South Australia and the Northern Territory; and Justice Connect in New South Wales, Victoria, Tasmania and the Australian Capital Territory.

Cover image source: Oliver Britton/Shutterstock.

This article was reviewed by our Sub Editor Tom Letts before it was published as part of our fact-checking process.

About the author:


Jacqueline Belesky is a Sub Editor at Canstar. She brings over 15 years of experience in corporate communications, media and publishing and holds a Bachelor of Journalism (Distinction) from Queensland University of Technology and postgraduate qualifications in Writing, Editing and Publishing from the University of Queensland. Jacqui was previously a Global Content and Media Manager for ABB in the UK and in Oslo, Norway, and has worked in Australia as a journalist for News Corp and editor for the Queensland Government, John Wiley & Sons and the University of Queensland. Jacqui’s articles have been published in The Courier-Mail, The Gold Coast Bulletin and on She also brings experience managing the editorial production of annual reports, financial statements, research papers and supplements on topics such as business sustainability and the global financial crisis. You can follow Jacqui on LinkedIn and Twitter, and Canstar on Facebook.

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