Personal Bankruptcy

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  What happens in a bankruptcy?

  Bankruptcy can evoke an emotional response in people. Like many things, the fear is worse than the reality. It is often feared because of misconceptions, but the process itself is structured, predictable and designed to give individuals relief from overwhelming debt. When bankruptcy is entered into properly, it provides protection from creditors and creates a clear path forward.

  Key things to understand include:

  • Bankruptcy is private
    Only your creditors and relevant government agencies are notified. It is not advertised publicly, and there is usually no reason for others to know unless you choose to tell them.
  • The standard term is three years
    Bankruptcy generally lasts three years from the date the Trustee accepts your application, provided you meet your obligations during this period.
  • Your home may be protected
    In many cases, the family home can be preserved if bankruptcy is planned carefully and equity arrangements are managed correctly. A structured approach gives the best chance of retaining important assets.
  • Overseas travel is still possible
    You can travel overseas while bankrupt, provided you obtain written consent from the Trustee. This approval process is routine and something we assist with regularly.
  • Income thresholds apply
    If your income exceeds a certain threshold, you may need to make contributions to the bankruptcy estate. Any income above the threshold is shared 50/50 between you and the Trustee.
  • Creditor pressure stops immediately
    Once bankrupt, unsecured creditors cannot continue collection, start legal action or pursue you for payment. This can significantly reduce stress and provide immediate relief.

  Bankruptcy is not a punishment — it is a legally recognised reset that gives individuals the opportunity to rebuild with certainty, structure and support.

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  What debts are included in bankruptcy?

  Bankruptcy clears most unsecured personal debts. This provides a clean financial reset for individuals whose liabilities can no longer be managed.

  Debts included in bankruptcy generally cover:

  • Credit cards, personal loans and overdrafts
  • Unsecured business loans and trade debts
  • ATO debts, including income tax, GST and PAYG
  • Expired Director Penalty Notices (DPNs) that have created personal liability
  • Personal guarantees provided to lenders or suppliers
  • Claims made by a liquidator, such as insolvent trading or preference recoveries
  • Judgments or legal claims relating to unsecured debts

  Some debts are not cleared in bankruptcy. These include:

  • HECS/HELP debts
  • Court-imposed fines or penalties
  • Child support and certain family law debts
  • Debts incurred through fraud
  • Unliquidated damages for personal injury claims
  • Proceeds of crime-related debts and compensation orders

  Understanding which debts are included helps you make informed decisions and ensures that bankruptcy is the right option for your situation.

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  What happens to my assets?

  What happens to your assets in bankruptcy depends on the type of asset, how it is owned and whether there is equity available. With the right planning and advice before entering bankruptcy, it is often possible to protect what matters most.

  Key considerations include:

  • The family home
    If the home is jointly owned, the Trustee will review the equity position. In many cases, family members may be able to purchase your share of the equity, allowing the property to be retained. Planning before bankruptcy gives you the best chance of preserving the home.
  • Vehicles
    You are generally allowed to keep a motor vehicle up to a certain equity threshold. Many people continue using their car throughout bankruptcy without issue.
  • Personal items
    Household goods, furniture, clothing and personal belongings are protected and cannot be taken by the Trustee.
  • Superannuation
    Superannuation balances are protected and cannot be accessed by the Trustee, unless funds were withdrawn and not yet spent prior to bankruptcy.
  • Tools of trade
    Equipment or tools used to earn an income may be retained up to an allowable value, enabling you to continue working.
  • Bank accounts and cash
    The Trustee may access funds held at the date of bankruptcy. Planning ahead helps ensure essential living funds are preserved.

  Understanding how each asset is treated helps avoid unnecessary stress and allows you to prepare properly before entering bankruptcy.

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  What are my obligations during bankruptcy?

  Bankruptcy comes with certain obligations, but most are straightforward and easy to meet when you understand them clearly. Meeting these obligations ensures your bankruptcy runs smoothly and is completed within the standard three-year period.

  Your key obligations include:

  • Keeping your Trustee updated
    You must inform the Trustee of any changes to your personal circumstances, including your address, income, employment or dependants.
  • Providing information when requested
    You may be asked for bank statements, tax returns, financial records or information about your assets. Providing this promptly helps avoid delays.
  • Meeting income contribution requirements
    If your income exceeds the allowable threshold, you may need to make contributions to your bankruptcy estate. These thresholds vary depending on how many dependants you support.
  • Travel approvals
    Overseas travel is still possible, but you must obtain written consent from the Trustee before leaving Australia. This process is routine and generally approved when obligations are met.
  • Restrictions on credit
    While bankrupt, you must disclose your status if applying for credit above a certain amount. This requirement ends once you are discharged.
  • Restrictions on directorship
    You cannot act as a company director or manage a company without court approval during your bankruptcy period.

  These obligations are manageable, and most individuals find the process far less restrictive than expected. With proper guidance, bankruptcy becomes a structured and predictable pathway to financial recovery.

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  How long does bankruptcy last?

  Bankruptcy normally lasts for three years and one day from the date the Trustee accepts your application. This is known as the standard bankruptcy period. During this time, you must meet your obligations and maintain regular communication with the Trustee.

  In some situations, bankruptcy can be extended to five or eight years if the Trustee determines that obligations were not met — for example, if required information wasn’t provided or income contributions were not paid. These situations are avoidable when the process is managed properly.

  At the end of the bankruptcy period, you are formally discharged. Discharge means you are released from most of the debts included in the bankruptcy and can begin rebuilding with a clean financial foundation.

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  What are the benefits of bankruptcy?

  Bankruptcy can feel daunting, but for many people it provides immediate relief and a structured path toward financial stability. When used appropriately and with proper planning, bankruptcy offers several important benefits:

  • Immediate protection from creditors
    Once bankruptcy begins, unsecured creditors must stop all collection, recovery and legal action. This brings instant relief from calls, letters and enforcement.
  • A clean end to most personal debts
    Bankruptcy finalises the majority of unsecured debts, including tax debt, personal loans, credit cards, personal guarantees and liquidator claims. This allows you to reset financially.
  • A predictable and structured process
    The rules are clear, the timeframes are fixed and the process is straightforward when managed properly. This certainty helps reduce stress and anxiety.
  • Protection for income up to threshold levels
    You can continue working and earning income. Only income over the threshold is shared with the bankruptcy estate, enabling you to maintain your living expenses.
  • A pathway to rebuild
    Bankruptcy gives you the chance to reorganise your financial affairs, regain stability and move forward without the constant pressure of unmanageable debt.

  Bankruptcy is not an ending — it is a controlled reset that helps individuals take back control and rebuild their financial lives with confidence.

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  What should I consider before declaring bankruptcy?

  Before entering bankruptcy, it is important to understand how the process will affect your personal situation and whether alternative options may offer a better outcome. Key considerations include:

  • Whether other solutions are still available
    In some cases, a payment arrangement, negotiation, asset restructure or settlement may resolve the issue without needing bankruptcy.
  • The impact on your assets
    The family home, vehicles and bank accounts each have different rules depending on ownership and equity. Planning ahead helps protect value wherever possible.
  • Your role as a company director
    Bankruptcy restricts you from acting as a director during the bankruptcy period, which may affect how your business is managed or whether restructuring is required beforehand.
  • Personal guarantees and DPNs
    Bankruptcy resolves most personal guarantees and expired DPNs. Understanding which debts are included helps ensure there are no surprises later.
  • Joint ownership and shared responsibilities
    If assets are jointly owned, a coordinated approach may be needed to achieve the best outcome for you and your family.
  • Timing
    Entering bankruptcy at the right time can reduce stress, protect assets and avoid unnecessary complications.

  Bankruptcy is a major decision, but with proper guidance it can be a structured and effective pathway to financial recovery. If you are unsure whether bankruptcy is right for you, or if you want to explore every option available, our team can help you understand your choices clearly and confidentially.

  Contact the de Jonge Read® team today for a no-cost, no-obligation discussion about your personal situation and the best path forward.

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