“Bankruptcy isn’t the end of your financial story, it’s the reset button some people need to take control again.”
— John Morgan, Director
In 2025, more Australians are confronting personal financial stress due to the lingering effects of COVID-era debt, rising living costs, and increased interest rates. When debt becomes unmanageable, one of the most misunderstood but potentially life-changing options is personal bankruptcy.
Handled correctly, bankruptcy can give individuals the breathing room they need to rebuild. But it’s not a decision to take lightly. If you’re considering this path, here are seven key things you need to know about personal bankruptcy in Australia today.
What Is Personal Bankruptcy in Australia?
Bankruptcy is a legal process that releases you from most debts and provides protection from creditors. In Australia, it’s governed by the Bankruptcy Act 1966 and administered by the Australian Financial Security Authority (AFSA).
The period of bankruptcy is generally 3 years and 1 day, after which time the bankruptcy is discharged, although the period may be extended in certain circumstances. It’s a legitimate option for individuals with unsecured debts who cannot repay what they owe. But while it can bring relief, it also comes with serious long-term consequences.
How Bankruptcy Affects Your Assets
Not all assets are taken from you when you declare bankruptcy. However, depending on your circumstances, you may lose:
- Property (other than your primary residence in some cases)
- Vehicles over a certain value
- Shares and other investments
Essential household goods, most personal belongings, superannuation and tools of trade, to a maximum threshold are typically protected.
Understanding what you’ll retain is a crucial part of personal bankruptcy that Australia residents often overlook until it’s too late.
Your Income May Be Impacted
During bankruptcy, you can still earn an income—but there’s a maximum threshold. Earning above the maximum may require you to make payments towards your debts.
This income threshold is updated regularly and varies depending on your number of dependents. It’s important to talk to a registered bankruptcy trustee to understand how your situation will be affected.
Not All Debts Are Wiped
Bankruptcy can eliminate many unsecured debts, including:
- Credit cards
- Personal loans
- Overdue utility bills
- Certain tax debts
However, some debts are not cleared through bankruptcy, including:
- Child support or Centrelink overpayments
- Court-ordered fines
- HECS-HELP debts (in most cases)
- Debts incurred through fraud
Always review which debts you’ll still need to pay before considering this path.
Bankruptcy Will Affect Your Credit History
Once you declare bankruptcy in Australia, it will remain on your credit file for 5 years from the date you become bankrupt, or 2 years from when your bankruptcy ends, whichever is later. It will also be listed on the National Personal Insolvency Index (NPII), which is a public register.
This will affect your ability to obtain loans, credit cards, and even rental applications in the future. That’s why exploring all other debt solutions first is part of responsible personal bankruptcy Australia planning.
You Must Comply with Your Legal Obligations
Once bankrupt, you’re legally required to:
- Provide all necessary financial information to your trustee
- Disclose any future changes to income or assets
- Not travel overseas without written permission
Failure to comply with these obligations can lead to an extension of your bankruptcy or further penalties.
There Are Alternatives to Bankruptcy
Before declaring bankruptcy, it’s wise to speak with an insolvency advisor. Options such as:
- Debt agreements
- Informal arrangements
- Financial hardship assistance from creditors
- Budget restructuring
…can provide a solution without the long-term consequences of bankruptcy. The BCR Advisory team help individuals assess their real options based on their financial position and future goals.
Final Thoughts
Personal bankruptcy in Australia is not something to be feared, but it should be fully understood. It may offer relief from overwhelming debt, but it also brings obligations and restrictions that will affect your financial future.
If you’re feeling trapped by debt, know that you’re not alone. Help is available, and guidance from trusted professionals can give you the clarity and support you need. As John Morgan says, it’s about “taking control again”, and that starts with the right advice.