Bankruptcy in Australia: everything you need to know before you decide

If you’re here, there’s a good chance things feel overwhelming. Maybe the bills are piling up, creditors are calling, and you’re starting to wonder if bankruptcy is your only option.

Thousands of Australians enter bankruptcy or formal debt agreements each year, according to Australian Financial Security Authority (AFSA) data, showing just how common financial stress has become and that there are multiple paths forward.

Before you decide, it’s important to understand how bankruptcy works in Australia, what happens when you declare bankruptcy, how long it lasts, and what alternatives may be available.

At MyBudget, we’ve helped over 130,000 Australians regain control of their money. For many, bankruptcy felt like the only option, until they realised there were other ways forward. Our personal insolvency team works with clients every day to explore all available options before taking that step.

If you’re thinking about bankruptcy, these are the first steps to take:

1. Speak to a financial counsellor or a MyBudget expert Money Coach to understand your options
2. Review your debts, credit cards, income and liabilities in detail
3. Consider alternatives like debt agreements or personal insolvency agreements
4. Understand how bankruptcy may affect your assets, credit and employment
5. Get clear on the AFSA application process before making a decision.

Bankruptcy in Australia is a legal insolvency process where you are declared unable to pay your debts as they fall due (insolvent). It can release you from most unsecured debts and provide a fresh financial start, but it also means a trustee may take control of certain assets and monitor your financial situation for a set period.

Bankruptcy can give people breathing room when debt has become unmanageable, but it also comes with serious restrictions and long-term consequences. Before moving forward, it helps to understand not just what bankruptcy is, but how it can affect your money, assets, work, travel and future access to credit.

If you’re weighing up bankruptcy, it’s important to know there are a few formal insolvency options in Australia, each with different implications for your debts, assets, credit and future decision-making.

The three main options are:

1. Bankruptcy
2. Personal insolvency agreements
3. Debt agreements.

Although these options all sit under the broader personal insolvency framework, they are not the same thing. The right option depends on your debt level, income, assets, and whether you may be able to repay some of what you owe over time.

Bankruptcy in Australia works by appointing a trustee to manage your situation and deal with your creditors. It’s administered by the Australian Financial Security Authority (AFSA) or a registered trustee (including the Official Trustee in some cases), who notifies creditors, stops most collection on unsecured debts, and may sell certain assets or require income contributions.

How long does bankruptcy last in Australia?

Bankruptcy in Australia typically lasts for three years and one day from the date it is accepted. It remains on your credit file for up to five years and stays permanently on the National Personal Insolvency Index (NPII).

How long does bankruptcy stay on your credit file?

Bankruptcy generally stays on your credit file for up to five years, which can make it more difficult to access loans, credit cards, or other forms of finance during that time.

What happens when you declare bankruptcy in Australia?

There are two immediate actions that take place when you declare bankruptcy in Australia:

You are appointed a trustee

When you first declare bankruptcy in Australia, you are appointed a trustee who acts on your behalf with creditors. In addition, they work directly with you throughout the entirety of your bankruptcy.

You receive the protection of the Bankruptcy Act

When you’re declared bankrupt, you receive the protection of the Bankruptcy Act 1966 under Australian law, which stops creditors from taking further action. This means that when you’ve filed for bankruptcy, you’ll no longer be contacted by creditors for debts included in your agreement.

One of the biggest misconceptions about bankruptcy is that it ends when the three year period ends. In reality, some effects can continue well beyond discharge, particularly when it comes to your credit history and public insolvency record.

Bankruptcy can provide relief from debt, but it also comes with serious financial and lifestyle impacts that can affect you for years.

The trustee may take control of your assets

A trustee may take control of certain assets, including property, vehicles (above a set value), investments and some non-protected property, and sell them to repay creditors.

Can you work while bankrupt in Australia?

In most cases, you can continue working. However, there may be employment restrictions in certain roles (such as company director), and if your income exceeds a set threshold, you may need to make contributions toward your debts.

Your ability to travel overseas may be restricted

You will need written permission from your trustee for overseas travel, and in some cases, you may be asked to surrender your passport.

Your credit and borrowing ability will be affected

Bankruptcy will appear on your credit report, which can limit your ability to access loans, credit cards, car loans, home loans, and other credit from credit providers.

Your details become part of a public record

Your name will be listed on the National Personal Insolvency Index, which is a publicly accessible register.

For many people, the most important question is not just “what happens legally?” but “what will this mean for my day-to-day life?” Bankruptcy can affect a wide range of practical areas, from renting and running a business to travel plans and rebuilding your credit profile.

A bankruptcy trustee may take control of your assets, including property, vehicles and investments, and decide what can be kept or sold to repay creditors. They may also investigate assets you previously owned or have an interest in, even if not in your name. You can usually keep everyday household items, tools of trade, some protected property and a vehicle up to a certain value. Superannuation is generally protected.

A lot of people assume bankruptcy only affects assets that are clearly in their own name, but that is not always the case. Because the trustee may investigate ownership interests and recoverable assets, it is important to get advice before assuming that a home, vehicle or other valuable item is fully protected.

People don’t usually arrive at bankruptcy overnight. It’s often the result of ongoing financial pressure that becomes too difficult to manage. Common reasons include:

• Unmanageable credit card or loan debt
• Loss of income or employment
• Business losses
• Ongoing financial hardship and rising living costs.

If this sounds familiar, it’s important to know that bankruptcy is not your only option. There are often steps you can take before reaching this point, including seeking professional support to find out your options.

Recent AFSA statistics show personal insolvencies are rising again, as more Australians struggle with the ongoing cost of living and debt pressures.

AFSA, Quarterly Personal Insolvency Statistics.

If you’re weighing up bankruptcy, there are often multiple options, and the right one depends on your unique financial situation. Understanding your income, debts and overall financial position is key to choosing the right option. We aim to help you avoid bankruptcy where possible, and our team will guide you through each option, explain the process, and support your AFSA application if needed.

Without a budget, bankruptcy can become a short-term fix rather than a long-term solution.

If you’re thinking, “I’ve tried budgeting before and it didn’t work,” we hear that a lot. Most people were never taught how to manage money, and struggling doesn’t mean you’re bad with money, it usually means you didn’t have the right system.

A structured budget with the right support helps you:

• Stay on top of bills and essential expenses
• Avoid falling back into debt
• Build savings and financial stability
• Work toward long-term financial goals.

At MyBudget, we put the right systems in place and do the heavy lifting for you, so you can move forward with confidence, not just recover, but rebuild.

Many people in financial stress think bankruptcy is their only option. Before going down the path of bankruptcy, it’s worth understanding what other options may be available to you. Options such as debt consolidation, hardship arrangements, and structured repayment plans can help you regain control without the long-term consequences of bankruptcy.

If this is where you’re at, it can feel like there’s no way out, but in many cases, these options can provide enough relief to help you avoid bankruptcy altogether.

At MyBudget, we can help you avoid this with a tailored budget plan that keeps you and your finances on track. Our dedicated debt negotiation team works directly with creditors on your behalf, negotiating more manageable repayments. In 2025 alone, we’ve saved our clients over $2 million in interest and fees.

If you’re looking for a clear starting point, our free guide on the 10 steps to get out of debt can help you take back control before considering more serious options like bankruptcy.

MyBudget completely changed my life. I was on the verge of bankruptcy and couldn’t see a way out. With MyBudget’s support, I’m now debt free, have rebuilt my credit score and plan to buy my own home.

Jo | MyBudget client, Trustpilot

Informal debt arrangement

Before going down the path of bankruptcy, first speak to your creditors about informal payment arrangements that you can afford. Most creditors want to help, especially if you demonstrate that you’re earnest about meeting your debt obligations. You may be able to arrange a break from payments for a reasonable time, a payment plan or hardship arrangements.

Formal debt agreement

As well as bankruptcy, the Bankruptcy Act includes provision for formal debt agreements that allow you to propose a reduced settlement amount to your creditors that you can pay off over time (see section below).

Declaration of Intention to Present a Debtor’s Petition (DOI)

While you explore your payment options, you have the option of lodging a ‘Declaration of Intention to Present a Debtor’s Petition’ (DOI). A DOI won’t stop creditors from repossessing goods for secured debts, but it can provide a 21-day protection period where creditors of unsecured debts cannot take further action against you.

Personal Insolvency Agreements

A Personal Insolvency Agreement (PIA), often called a Part X debt agreement, is a legally binding arrangement with your creditors. A trustee makes an offer to repay part or all of your debts, either in instalments or as a lump sum. In some cases, you may be able to keep assets that could be at risk in bankruptcy. If you exceed Part IX limits, a Part X PIA may be an option.

Affordably pay your way out of debt

With the right plan, many people can pay down debt using their existing income without new loans or further damage to their credit. At MyBudget, we put the right plan in place and support you every step of the way.

If you want a clear way forward, call 1300 300 922 or enquire online to get started.

Bankruptcy can release you from most unsecured debts, while a Part IX debt agreement lets you repay a reduced amount to creditors in manageable instalments over three to five years, often with interest frozen. It’s still an act of bankruptcy and has similar consequences, and if creditors don’t accept your proposal through AFSA, they can apply to have you made bankrupt.

What debts are included in bankruptcy?

Most unsecured debts are included in bankruptcy, such as credit cards, personal loans, and utility debts, while secured debts (like a home loan or car loan) are treated differently. These are typically the debts you are released from once bankruptcy is complete.

What debts are not included in bankruptcy?

Some debts are not covered by bankruptcy, including court fines, child support, certain Tax Office obligations and some secured debts. These will still need to be paid even if you are declared bankrupt.

Can you keep your house in bankruptcy?

In many cases, property is considered an asset and may be sold by the trustee to repay creditors. However, outcomes can vary depending on ownership structure, equity, and individual circumstances, so it’s important to seek advice.

What are some common myths about bankruptcy?

There are a lot of misconceptions about bankruptcy. Here’s what’s actually true:

Myth 1: “Bankruptcy will ruin my life”

Bankruptcy has serious consequences, but for some people it can be a reset point. With the right plan and habits, it can be the start of rebuilding your finances.

Myth 2: “Bankruptcy is a quick fix for debt problems”

It’s not. Bankruptcy typically lasts three years and affects your credit file for longer, so it should be considered carefully alongside other options.

Myth 3: “I’ll never be able to borrow money again”

Not true. You may find it harder at first, but lenders can consider you again after discharge if you demonstrate strong financial habits.

Myth 4: “Bankruptcy has a social stigma”

Financial stress is common, and bankruptcy isn’t a moral failure. In many cases, it’s a private matter and simply a step toward getting back on track.

Bankruptcy should always be considered as a last resort. If things feel overwhelming right now, you can speak to a free financial counsellor like the National Debt Helpline.

But if you’re ready for more tailored ongoing support, a clear plan, structure, and someone to take the pressure off, that’s where MyBudget comes in.

We build a personalised plan around your income, bills and goals, manage your repayments, and work directly with your creditors so you don’t have to carry this on your own.

If you’re ready to move forward with a personalised debt management plan that actually works long-term,

Enquire online

or call 1300 300 922 to book your free, no obligation appointment.

Imagine where your finances could be 12-months from today!