You can reach the finish line early when it comes to bankruptcy. Learn how to end a bankruptcy early.


So, you’ve unfortunately found yourself bankrupt . By now you should be aware that the standard period for a bankruptcy is three years, after which you are discharged (unless the period of bankruptcy is extended). This may feel like an extremely long time to be subject to the rigours of bankruptcy.

So what if you want to get out of bankruptcy early?

The Bankruptcy Act includes provisions for people to end their bankruptcy early, yet few people take advantage of this, possibly because they have no idea that it’s possible.

In this article we’ll outline the two main options available to you to get out of bankruptcy early.

OPTION 1: Pay All Your Debts

If you have the means to do it, this is the simplest way of ending a bankruptcy. Of course if you’ve found yourself bankrupt it’s likely you won’t have the necessary cash just lying around. However what about friends and family members?

Under the Bankruptcy Act, your bankruptcy comes to an end if all your debts are paid.

Now, in this scenario, “all your debts” doesn’t just mean the debts you owe to creditors, it also means:

  1. Your bankruptcy trustee’s fees and expenses. These are usually expensive, so it’s imperative you act as quickly as possible to get the necessary funding together and inform your trustee of your intensions to pay all your debts.
  1. The AFSA Realisations Charge. This is a tax of 7% on all realisations in your bankrupt estate. This means if you pay $100,000 to your trustee to annul your bankruptcy, $7,000 will go to AFSA.
  1. Post-bankruptcy interest on all debts that can accrue interest. This includes debts such as judgment debts and credit card debts.

In general, this type of annulment will occur when someone has a large amount of equity in their home that they can refinance against. Another common scenario is a contribution from a family member with the ability to put up the money required.

OPTION 2: Section 73 Composition 

A Section 73 Composition (named because it arises under section 73 of the Bankruptcy Act) is essentially where someone puts forward a proposal to their creditors to get out of bankruptcy in exchange (usually) for the payment of a lump sum to the bankruptcy trustee. This lump sum will then go towards the trustee’s fees and expenses, and then towards creditors, pro rata.

For the best chance of your creditors accepting this proposal, you should offer them a better return through the section 73 proposal than what they’ll receive if the bankruptcy continues. This could work via a family member providing part or all of the lump sum, and if you have any related creditors, these creditors agreeing not to receive a dividend, allowing your unrelated creditors to get a better return.  

Benefits of getting out of bankruptcy  early

Considering the extra effort involved, you might be asking yourself, “why would I want to get out of bankruptcy early anyway?” Well, there are several advantages to ending a bankruptcy early, including:

  1. Your income is no longer subject to assessment by your trustee. Therefore, you no longer have to make income contributions. You keep everything you earn (less tax of course).
  2. You can be a company director again.
  3. You are no longer subject to the “stigma” of bankruptcy
  4. You will be able to obtain finance and credit much easier

If getting out of your bankruptcy as soon as possible is a matter of interest to you, get in touch for a detailed discussion of your best available options.


Posted on 29-01-18 in Bankruptcy Assistance, Debt management.