On this page

Bankruptcy is a legal process for people who can’t pay their outstanding debts. It can release you from most debts and stop debt collectors from contacting you. However, it can also have impacts on your life and financial future.

Bankruptcy only applies to individuals, such as sole traders or partners in a partnership. If a company can’t pay its debts, it’s insolvent and needs to follow a different process.

This page is for people who are thinking about applying for bankruptcy themselves. Your creditors (the people or businesses you owe money to) can also apply for you to be made bankrupt. The Australian Financial Security Authority (AFSA) website explains what to do if a creditor has made you bankrupt.

Talk to a professional for advice

If you’re struggling with debt, it may feel like bankruptcy is the only option.

Before you do anything, get advice from a professional, such as a business adviser, financial counsellor or your accountant. They’ll assess your situation and can suggest other ways of paying your debt that don't involve bankruptcy or closing your business.

The Small Business Debt Helpline is a free, confidential advice service for small business owners in financial trouble.

Help is also available if financial stress is affecting your mental health and wellbeing.

Alternatives to bankruptcy

Bankruptcy is only one of the formal options available to deal with your debt. Depending on your circumstances, you might be able to instead use:

  • temporary debt protection
  • a debt agreement
  • a personal insolvency agreement.

Talk to a financial counsellor or other expert before you apply for any of these options.

Temporary debt protection

Temporary debt protection protects you from unsecured creditors for 21 days. During this period, creditors can’t take any action to recover their debts (like garnishing your wages or getting a sheriff or bailiff to seize your goods).

You can use this time to work out a payment plan with your creditors or consider another formal option.

You can only access temporary debt protection once every 12 months.

Debt agreement

A debt agreement is a legally binding agreement between you and your creditors. It means you agree to pay off a portion of your debt over time.

A debt agreement can be a way to settle debts without becoming bankrupt. It can also mean your creditors get more money than they would if you became bankrupt.

To make a debt agreement, your income, assets and debt need to be under a certain limit. A majority of your creditors (by dollar value) also need to accept the agreement.

Personal insolvency agreement

A personal insolvency agreement is a legally binding agreement that lets you pay off your debt in a way that suits your financial situation.

Unlike a debt agreement, your debt, income and assets don't have to be under a certain limit to be eligible for a personal insolvency agreement.

Who can apply for bankruptcy

To apply for bankruptcy, you need to:

  • be unable to pay your debts when they’re due
  • live in Australia or have a business connection to Australia.

How to apply for bankruptcy

To apply for bankruptcy, you must submit these forms to the Australian Financial Security Authority (AFSA):

  • a debtor’s petition, which is a formal request to make yourself bankrupt
  • a statement of affairs, which outlines your financial situation, including income, assets and debts.

If you’re applying for bankruptcy as a member of a business partnership, each form must be submitted by either:

  • all of the partners of the business partnership
  • the majority of partners who live in Australia.

Appointing a trustee

A trustee is a person or organisation who manages your bankruptcy. This includes managing or selling assets to repay creditors and ensuring any funds are distributed fairly.

Your trustee can be either:

  • AFSA
  • a registered trustee – a qualified insolvency professional who is registered with AFSA.

If you’d like to appoint a registered trustee to manage your bankruptcy, they’ll need to complete a trustee consent to act declaration form. Submit this form to AFSA along with your bankruptcy application.

If you don’t appoint a trustee, AFSA will manage your bankruptcy to begin with. They may transfer administration of your bankruptcy to a registered trustee.

What happens next

Once a trustee has been appointed, they’ll notify your creditors that you’re bankrupt. This protects you from most creditors taking legal action against you.

The trustee may sell some of your assets to help pay your debts. They can also take cash or money from your bank account. If you’re earning income over a certain amount, you’ll have to make compulsory income payments as well.

You must tell your trustee about any changes to your financial situation, including your income, employment or assets.

Bankruptcy normally lasts for 3 years and 1 day from the day AFSA accepts your bankruptcy application. After this time, you’re released from most of your debts and no longer need to pay them.

Debts that bankruptcy covers

Bankruptcy covers most unsecured debts – debts that aren’t tied to specific property. For example:

  • credit cards
  • personal loans
  • utility bills
  • unpaid rent
  • overdrawn bank accounts
  • legal and accounting fees.

However, you’re still liable for other debts, such as:

  • child support and maintenance
  • court-imposed penalties and fines
  • HECS and HELP debts
  • debts you incur after your bankruptcy begins.

Contact your creditors directly to discuss payment options for any debts that aren’t covered by bankruptcy.

Consequences of bankruptcy

Bankruptcy can clear most debts and give you a fresh start. But it can also have serious consequences.

Being bankrupt can:

  • affect your income, because you might have to make compulsory repayments if you earn over a certain amount
  • make you lose assets, as some of them may be sold
  • stop you from travelling overseas without your trustee’s permission
  • make it harder to rent a home
  • prevent you from being a director of a company or holding some public positions
  • impact your ability to work in some trades or professions.

Bankruptcy can also make it harder for you to obtain credit in future.

Even after your bankruptcy ends, your name will permanently appear on the publicly accessible National Personal Insolvency Index (NPII).

Read next