What are the Consequences of Bankruptcies in Australia?

October 16, 2025

The consequences of personal bankruptcy include affecting your credit, employment, business roles and travel permissions, with long-term restrictions that continue after discharge. Records remain permanent on the National Personal Insolvency Index (NPII) and appear on credit reports for 5 years from the start date or 2 years from discharge, whichever comes later. These outcomes shape how individuals rebuild financially under Australia’s bankruptcy laws.

Recent data from the Australian Financial Security Authority (AFSA) highlights this increase. In May 2025, there were 1,087 new personal insolvencies, including 620 bankruptcies, 451 debt agreements and 16 personal insolvency agreements.

If you’re struggling to pay your debt or considering bankruptcy, our team at Macmillan Lawyers and Advisors can help. Our experienced bankruptcy lawyer can explain your options, outline your rights and help you take the next step toward financial recovery. We offer a free 30-minute consultation to discuss your situation.

What Happens When You Go Bankrupt in Australia?

When you become bankrupt in Australia, a trustee takes control of your finances under the Bankruptcy Act 1966. The trustee may be a private professional or the official trustee at AFSA. They review your assets, income and debts, and manage repayments to creditors. This process differs from company liquidation, which applies to businesses rather than individuals.

Bankruptcy starts when AFSA accepts your Bankruptcy Form. A moratorium then applies, stopping most creditor recovery and legal action. You must also lodge a statement of affairs within 14 days, so the trustee can assess your position.

Essential household items, tools of trade, one vehicle within the legal limit, superannuation, and some compensation payments remain protected. Other assets can be sold to repay creditors. If your income exceeds the threshold set by AFSA, then contributions may apply.

The bankruptcy period lasts for 3 years and 1 day, but may extend to 5 or 8 years for non-compliance. When discharged, most unsecured debts are cleared, though child support, HECS-HELP and court fines continue.

What Happens to Your Assets?

When you enter bankruptcy, a trustee administers your property in line with the Bankruptcy Act 1966. The trustee identifies which property is protected and which may be realised for creditors. This formal debt recovery process ensures creditors receive payment from non-protected assets. The law allows you to keep essential items needed for daily life or work.

Assets You Can Keep

You can keep most household goods and personal items. One vehicle used mainly for transport can be kept if its equity, after finance, is less than a certain amount set by your jurisdiction. Tools of trade that you use to earn income are also protected up to a certain amount.

All regulated superannuation funds are protected if received on or after the bankruptcy date, although the trustee may recover contributions made to defeat creditors. Compensation for personal injury, life insurance and assets held on trust for another person, such as a child’s savings, also remain outside the estate.

Assets that May be Sold

The trustee may sell assets that aren’t protected by law, including:

Property where equity exists, even when owned jointly, unless another owner buys your share.
Vehicles with equity above the protected limit, though one necessary car for work or family use, is usually kept.
Valuable items such as jewellery, collectibles or luxury goods that exceed reasonable personal use.
Shares, savings, and financial investments that can be realised to repay creditors.
Inheritances, gifts and lottery winnings received during bankruptcy which form part of the estate.

What Debts are Not Cleared?

When you become bankrupt, not every debt is released. The consequences of bankruptcies in Australia include ongoing liability for certain obligations even after the bankruptcy period ends.

You’re still liable for these debts:

Child support and maintenance payments.
HECS-HELP and other student loans.
Court fines and penalties.
Debts arising from fraud or criminal offences.
Damages for personal injury caused by intentional wrongdoing or driving offences.
Family law obligations under property or maintenance orders.
Non-provable non-monetary obligations, such as certain government payments or contractual duties that survive bankruptcy.

If you’re considering bankruptcy, you can contact Macmillan Lawyers and Advisors for clear legal advice about your options, rights and obligations. You may also reach the National Debt Helpline on 1800 007 007 to speak to a financial counsellor for free and confidential guidance before you apply for bankruptcy.

How Bankruptcy Affects Your Income

Bankruptcy affects your income by deciding how much you can keep and how much must go to your trustee. While you can keep working and earning money, your pay is assessed under the Bankruptcy Act 1966 to see if it exceeds the limit set by the Australian Financial Security Authority (AFSA).

If your income is under this limit, you keep it all. If it’s above, you must pay part of it to your trustee to help repay your creditors.

How Income Contributions Work

Income contributions are payments you make when your after-tax earnings are higher than the limits set by the Australian Financial Security Authority (AFSA). These limits are called Actual Income Threshold Amounts (AITA) and depend on how many dependents you support. A dependent is someone who lives with you, relies on your income and earns less than $4,512 a year.

As of September 2025, the AITA thresholds are approximately:

$74,064.90 for no dependents
$87,396,58 for one dependent
$94,062.42 for two dependents
$97,765.67 for three dependents
$99,246.97 for four dependents
$100,728.26 for more than four dependents

If your income exceeds the threshold, you must contribute 50 cents for every dollar over the limit to your trustee.

For example:

Earning $90,000 with no dependents: excess is $15,935.10, contribution is $7,967.55.
Earning $110,000 with two dependants: excess is $6,309.14, contribution is $3,154.57.

Income assessments are reviewed every six months during the bankruptcy period, usually lasting three years and one day. These contributions form part of the consequences of bankruptcies in Australia, allowing creditors to recover a portion of what they’re owed.

Your Responsibilities During Bankruptcy

When you become bankrupt, you take on a set of legal duties that continue throughout the bankruptcy period. These responsibilities exist to help the trustee administer your estate and to keep the process fair for all creditors.

You must cooperate fully with your trustee by providing any information or documents requested. This can include bank statements, contracts, or details about money owed to you. You must also tell the trustee about any changes to your income, employment or personal situation that could affect your finances.

Overseas travel requires written permission from the trustee. Leaving without consent can lead to an offence under the Bankruptcy Act 1966 or an extension of your bankruptcy.

You’re not allowed to manage a company or act as a director during this time. If your business is facing financial difficulty, understanding the liquidation process may be necessary as an alternative to personal bankruptcy.

You must also disclose your bankruptcy status if you apply for credit over the indexed limit. Concealing property or giving false information can result in prosecution and delay your discharge from bankruptcy.

Bankruptcy vs Other Options

Bankruptcy is a legal process with serious long-term effects, but it’s not the only way to manage unmanageable debt. You may be able to avoid the consequences of bankruptcies in Australia by choosing an alternative.

Feature	Bankruptcy	Debt Agreement	Personal Insolvency Agreement	Hardship Variation with Lenders	Free Financial Counselling
Formality	Formal legal process under the Bankruptcy Act 1966.	Formal arrangement legally binding on all creditors.	Formal arrangement that’s legally binding on all creditors.	Informal, not legally binding.	Informal support service, no legal authority.
Cost	No cost to apply. Trustee fees deducted from your income contributions or asset sales.	Admin fees (20 to 30%) are included in your payments.	Trustee fees are included in your proposal or deducted from your estate.	Free, no cost to request.	Completely free service.
Eligibility	Must be insolvent. No debt, income or asset limits.	Must be insolvent, debts < $144,235, with income <$108,176.25, and assets < $288,470. Ineligible if you’ve been in a debt agreement in the previous 10 years.	Must be insolvent. No limits. Ineligible if you’ve proposed a PIA in the last 6 months.	Available to anyone experiencing temporary financial hardship.	Available to anyone, no specific requirements.
Duration	3 years and 1 day (can extend to 5/8 years in certain cases).	3 years (up to 5 years if you own a home).	No fixed timeframe, lasts until you’ve met the terms.	Varies, usually 3 to 6 months, sometimes longer.	Ongoing, you can access support as often as needed.
Asset Impact	Your trustee may sell your assets (except protected items).	You usually keep your assets as long as you make your payments.	Depending on your proposal, you may keep assets if creditors agree.	No impact, you keep all assets.	No impact, counselling doesn’t affect your assets.
Credit Impact	Stays on your credit report for 5 years from bankruptcy date or 2 years after discharge. Permanent record on National Personal Insolvency Index.	Stays on credit report for 5 years. Removed from NPII 2 years after completion or 5 years from start (whichever is first).	Stays on your credit report for 5 years. Listed on NPII.	May be noted on your credit file if payments are reduced or missed. Less severe than formal insolvency.	No credit impact, counselling is confidential and not recorded.
Travel Restrictions	Can’t travel overseas without your trustee’s written permission.	No automatic travel restrictions (though some agreements may include conditions).	May need trustee permission depending on agreement terms.	No restrictions.	No restrictions.
Work Restrictions	Can’t be a company director. Some licensed professions may be affected.	No automatic employment restrictions.	No automatic employment restrictions.	No restrictions.	No restrictions.
Debts Covered	Most unsecured debts are wiped out. Some remain (child support, court fines, HECS/HELP).	Covers most unsecured debts. Some debts excluded.	Covers debts included in your proposal.	All debts, but you’re still liable for full amounts.	N/A, counselling helps you manage existing debts.

Consequences of Bankruptcies in Australia FAQs

Can you still get credit while bankrupt?

Getting credit while bankrupt is extremely difficult. You must tell any lender you’re bankrupt if you want to borrow more than around $6,607 (indexed amounts apply). Failing to disclose is an offence.

Your name appears permanently on the National Personal Insolvency Index (NPII), and credit reporting agencies record your bankruptcy on your credit report for 5 years from the date of bankruptcy or 2 years after discharge.

This makes it very hard to get loans, credit cards, mortgages or rent a property. Most lenders will decline applications, and if approved, you’ll face much higher interest rates.

Am I allowed to travel while bankrupt?

You can’t travel overseas without your bankruptcy trustee’s written permission during the bankruptcy period (usually 3 years and 1 day).

Travelling without permission can extend your bankruptcy to 5 or 8 years and result in legal action. Permission is usually granted for compassionate reasons (family emergencies) or essential work travel, but it isn’t guaranteed.

Many people find this one of the serious consequences of bankruptcy, especially if they have family abroad.

Are there any work or business limits while bankrupt?

Yes. While you can work in most jobs, there are restrictions:

Running a business: You can operate as a sole trader, but must trade under your own name or disclose that you’re bankrupt if using a business name.
Company directors: You can’t be a director of a company or manage a corporation while bankrupt. This is automatic and breaching it is a criminal offence.
Licences and registrations: Some professions are affected, including lawyers, accountants, financial advisers, real estate agents, building contractors and some government positions. You may lose your licence automatically or need to disclose your bankruptcy.

Check with your professional body before you declare bankruptcy. Alternatives like a debt agreement or personal insolvency agreement may let you settle debts without becoming bankrupt and avoid these restrictions. Get legal advice to understand the consequences of bankruptcy for your specific career.

Posted in Business law