Bankruptcy can provide relief when debts have become unmanageable, but it also comes with important financial, legal and practical consequences.

Bankruptcy also creates ongoing responsibilities to your trustee and does not necessarily clear every type of debt.

I am Clare Corrigan, a Registered Trustee specialising in personal insolvency and bankruptcy. When I speak with people considering bankruptcy, I look beyond the immediate pressure of debt and consider how the consequences may apply to their individual circumstances.

Bankruptcy can be an appropriate option in some situations, but it should never be entered into without understanding the full picture.

What Are the Main Consequences of Bankruptcy?

Some of the main consequences of bankruptcy in Australia include:

• A trustee will administer your bankruptcy
• Certain assets may be claimed and sold
• Your home may be affected
• Income contributions may apply
• Some debts will remain payable
• Your bankruptcy will appear permanently on the National Personal Insolvency Index
• Your credit record will be affected
• You need permission to travel overseas
• Some employment and business restrictions may apply
• You cannot manage a company without court permission
• Money or property received during bankruptcy may be claimable
• You have ongoing disclosure and cooperation obligations

The Australian Financial Security Authority (AFSA) – Consequences of Bankruptcy provides detailed guidance about these consequences and the matters you should understand before applying for bankruptcy.

How significant each consequence is will depend on your particular financial position.

1. A Trustee Will Manage Your Bankruptcy

When you become bankrupt, a trustee is appointed to administer your bankrupt estate.

This may be the Official Trustee, administered by AFSA, or a Registered Trustee.

Your trustee's responsibilities can include:

• Reviewing your assets and liabilities
• Investigating your financial affairs
• Assessing your income
• Dealing with property available to creditors
• Communicating with creditors
• Reviewing transactions made before bankruptcy
• Collecting and distributing available funds

You also have responsibilities to provide accurate information and cooperate with reasonable requests from your trustee.

For a broader explanation of how bankruptcy works, visit Clare Corrigan's Bankruptcy Services page.

2. Some of Your Assets May Be Sold

One of the most important consequences of bankruptcy is the effect on your assets.

Your trustee may be able to claim and sell certain assets for the benefit of creditors.

These can potentially include:

• Real estate
• Shares and investments
• Money held at the date of bankruptcy
• Valuable jewellery or collectibles
• Certain vehicles
• Business interests
• Property acquired during bankruptcy

However, bankruptcy does not mean everything you own will automatically be taken.

AFSA confirms that certain property is protected, including ordinary household goods and vehicles and tools of trade within applicable indexed limits.

Those limits can change, which is why current figures should always be checked through AFSA's Indexed Amounts rather than relying on figures from older bankruptcy articles.

3. Your Home May Be at Risk

If you own a home or other real estate, bankruptcy can have significant consequences.

Your interest in property generally becomes available to your trustee.

The trustee will consider factors such as:

• The current property value
• The mortgage balance
• Available equity
• Whether the property is jointly owned
• Your legal or beneficial interest in the property

Joint ownership does not automatically protect your share.

If there is sufficient equity available, your trustee may seek to realise your interest for creditors.

Importantly, discharge from bankruptcy does not necessarily mean the trustee immediately loses their interest in property already vested in the bankruptcy estate.

If your home is one of your main concerns, read Will I Lose My House If I Go Bankrupt? for a more detailed explanation.

4. Bankruptcy Can Affect Your Car

You may be able to keep a vehicle primarily used for transport if your equity falls within the applicable protected limit.

If the vehicle is financed, the secured lender also retains its rights under the finance agreement.

A vehicle with equity above the protected threshold may potentially be dealt with by your trustee.

The rules can become more complicated where:

• You own multiple vehicles
• The car is jointly owned
• Finance is secured against the vehicle
• Another person contributed towards its purchase

For a detailed explanation of vehicle equity, finance and the current protected amount, see Can I Keep My Car If I Declare Bankruptcy?.

5. You May Have to Make Payments From Your Income

Bankruptcy does not stop you from working.

There is also no maximum amount you are allowed to earn simply because you are bankrupt.

However, if your assessed after-tax income exceeds the applicable statutory threshold, you may be required to make compulsory income contributions.

The amount depends partly on:

• Your assessed income
• The number of qualifying dependants
• The applicable indexed threshold

You are also required to keep your trustee informed about changes to your employment or income.

For a detailed explanation, read What Happens to My Income During Bankruptcy?.

You can also review the current rules directly through AFSA's Income and Employment guidance.

6. Bankruptcy Does Not Clear Every Debt

Bankruptcy can release you from many ordinary unsecured debts.

These may include:

• Credit cards
• Unsecured personal loans
• Payday loans
• Certain utility debts
• Overdrawn bank accounts
• Some tax debts
• Certain unpaid rent

However, some debts can remain payable.

These may include HECS or HELP debts, child support and maintenance obligations, court-imposed fines, certain fraud-related debts and debts incurred after bankruptcy begins.

Secured debts also require separate consideration because the secured creditor retains rights over the relevant asset.

You can read the detailed breakdown in What Debts Are Not Covered by Bankruptcy?.

AFSA also provides authoritative information about what happens to debts during bankruptcy.

7. Your Bankruptcy Becomes Part of a Permanent Public Record

Your bankruptcy is recorded on the National Personal Insolvency Index (NPII).

The NPII is Australia's public electronic record of personal insolvency proceedings.

A bankruptcy record remains on the NPII permanently.

This is different from your credit report, where bankruptcy information is generally retained for a specified period.

It is important to understand this distinction before applying for bankruptcy.

You can learn more through AFSA's National Personal Insolvency Index information.

8. Your Credit Record Will Be Affected

Bankruptcy can make obtaining credit more difficult.

Bankruptcy information generally remains on your credit report for:

Five years from the date you became bankrupt, or two years from when the bankruptcy ends, whichever is later.

Lenders ultimately decide whether they are prepared to provide credit after reviewing your circumstances and credit history.

During bankruptcy, you must also disclose your bankruptcy if you obtain or attempt to obtain credit above the applicable indexed disclosure amount.

Because this amount is indexed, you should check the current figure through AFSA's Indexed Amounts.

After bankruptcy ends, you can apply for credit again, but rebuilding your financial position can take time.

9. You Need Permission to Travel Overseas

Being bankrupt does not mean you can never leave Australia.

However, you must obtain written permission from your trustee before travelling overseas while you are bankrupt.

Your trustee may ask for information about:

• Where you are travelling
• The purpose of the trip
• How long you will be away
• Who is funding your travel

Travelling overseas without the required permission can have serious consequences.

After your bankruptcy ends, you generally no longer need your trustee's permission to travel.

Before planning an overseas trip, review AFSA's guidance on the consequences of bankruptcy and overseas travel or speak directly with your trustee.

10. Bankruptcy May Affect Employment and Business Activities

Bankruptcy does not generally prevent you from being employed.

It also does not normally mean your employer will automatically be notified simply because you become bankrupt.

However, some professions, licences and occupations have their own restrictions.

Bankruptcy may affect roles involving:

• Trust accounts
• Certain professional licences
• Certain public positions
• Financial responsibilities

If you work in a regulated profession, you should check the requirements of the relevant licensing or professional body.

Bankruptcy also does not necessarily stop you operating as a sole trader, although disclosure requirements and other bankruptcy obligations can apply.

11. You Cannot Be a Company Director While Bankrupt

An undischarged bankrupt generally cannot manage a corporation or act as a company director unless permission is obtained from the court.

This can be particularly important for business owners.

ASIC confirms that an undischarged bankrupt is automatically disqualified from managing corporations unless court leave is obtained.

If you operate a business through a company, you should understand how bankruptcy could affect your directorship, shares and personal guarantees before proceeding.

For authoritative information, see ASIC – Bankruptcy and Personal Insolvency Agreements.

12. Money You Receive During Bankruptcy Can Be Affected

Another consequence that is sometimes overlooked is what happens if your financial circumstances improve while you are bankrupt.

Certain property or money you become entitled to during bankruptcy may become available to your trustee.

A significant example is an inheritance.

If your entitlement to an inheritance arises before or during bankruptcy, it may become property available to your trustee for the benefit of creditors.

Lottery winnings and some other assets received during bankruptcy may also be claimable.

Superannuation is treated differently.

In many circumstances, money held in a regulated superannuation fund is protected. However, the way superannuation is received, when it is received and the circumstances surrounding contributions can affect its treatment.

If you expect to receive an inheritance, significant payment or superannuation benefit, speak with your trustee before making financial decisions based on that money.

13. Your Tax Refund May Be Affected

You still need to lodge tax returns while bankrupt.

What happens to a tax refund depends partly on when the relevant income was earned.

AFSA explains that:

• Refunds relating to income earned before bankruptcy can be assets that your trustee may claim.
• Refunds relating to income earned after bankruptcy begins can form part of your assessable income for compulsory contribution purposes.

The ATO may also keep a tax refund if you owe money to the ATO or another relevant Commonwealth agency.

AFSA recommends that you do not spend a tax refund until your trustee has assessed whether they have a claim over it.

For more information, see AFSA – Bankruptcy and Tax Returns.

14. Bankruptcy Can Affect Existing Legal and Family Law Matters

If you are involved in legal proceedings, you should tell your trustee.

Bankruptcy can be particularly important where family law property proceedings are underway.

A trustee may become involved in property proceedings, and bankruptcy can affect your ability to deal with property that has vested in the trustee

If bankruptcy overlaps with separation, divorce, disputed property ownership or another legal proceeding, independent legal advice may be necessary in addition to insolvency advice.

How Long Do the Consequences of Bankruptcy Last?

Bankruptcy generally lasts for three years and one day.

For voluntary bankruptcy, the period generally begins when AFSA accepts your bankruptcy application.

Where a creditor has made you bankrupt, the calculation can depend on when an acceptable Statement of Affairs is filed.

The bankruptcy period can also be extended in certain circumstances.

Some consequences may continue after discharge.

For example:

• Your NPII record remains permanently
• Bankruptcy may continue to appear on your credit report
• Certain debts can remain payable
• Your trustee may continue administering assets already vested in the bankrupt estate
• Outstanding income contributions may remain payable

This is why discharge from bankruptcy does not necessarily mean every aspect of the administration ends on the same day.

For more information about what happens during and after bankruptcy, see Clare Corrigan's What Happens When You Declare Bankruptcy in Australia.

Is Bankruptcy the Right Option?

The consequences of bankruptcy can be significant, but that does not mean bankruptcy is always the wrong choice.

For someone with unmanageable unsecured debts and limited ability to repay them, bankruptcy may provide meaningful relief and a structured way to address serious financial difficulty.

For another person with substantial property equity, significant income or debts that bankruptcy will not clear, another option may deserve consideration.

Alternatives can include:

• Informal negotiations with creditors
• Hardship arrangements
• Debt agreements
• A Personal Insolvency Agreement

You can learn more about another formal insolvency option through Clare Corrigan's Personal Insolvency Agreement information.

AFSA also provides a useful comparison of personal insolvency options.

How I Can Help You Understand the Consequences

Bankruptcy should not be considered only in terms of the debts it may clear.

Before making a decision, I look at how bankruptcy may affect your:

• Debts
• Income
• Home and other assets
• Vehicle
• Employment
• Business interests
• Credit position
• Family circumstances
• Future financial plans

As a Registered Trustee specialising in personal insolvency and bankruptcy, my role is to explain these consequences clearly and help you understand the options available.

Every financial situation is different.

If you are considering bankruptcy or are struggling with debts you can no longer manage, contact Clare Corrigan to arrange a confidential discussion about your circumstances and the options that may be available.