What are the effects of going bankrupt

The effects of bankruptcy are serious and generally can’t be cancelled if you change your mind. You should get advice before you go bankrupt including on what assets can be sold in bankruptcy and other effects of bankruptcy. We can help you consider your options, so give us a call to discuss your circumstances. In the meantime, this article sets out some of the consequences of bankruptcy.

How long does bankruptcy last?

In Australia, bankrupt lasts for a period of 3 years and 1 day for an individual that voluntarily files for bankruptcy. For an individual that is made bankrupt on application by a creditor it will be 3 years and 1 day from the date that they file their Bankruptcy Form. Therefore, if someone else makes you bankrupt it is best to complete a Bankruptcy Form as soon as possible.

In or around 2018 / 2019 the Turnbull Government proposed legislation to reduce the term of bankruptcy to 1 year. However, the legislation wasn’t passed and has now lapsed.

The period of bankruptcy may be extended for a period up to eight years if you fail to comply with your trustee’s reasonable requests or in certain other circumstances.

Who will know you are bankrupt?

Your name will be permanently recorded on the National Personal Insolvency Index (NPII) which is a public register that can be searched for a fee.

Credit reporting agencies will record for bankruptcy for the longer of the following two periods:

  • Five years from the date you become bankrupt; or
  • Two years from the date your bankruptcy ends.

If you incur credit from someone while you are bankrupt, you have to tell them you are bankrupt if the amount of credit you are seeking is over $5,882.

What happens to your assets?

Whilst you are bankrupt, a trustee will manage your bankrupt estate. They will review all assets owed by you and, if appropriate, they will sell your assets to recover funds for the benefit of your creditors. This may include selling:

  • Real property;
  • Tools of trade over a threshold amount, currently $3,800;
  • Vehicles over a threshold amount, currently $8,000 excluding any finance;
  • Boats, caravans or camper trailers; and
  • Any other items of high or significant value including cryptocurrencies and jewellery.

The Trustee can also realise any assets or monies that you inherit or acquire whilst you are bankrupt. For further details on assets please see our article on after acquired property.

Investigations your Trustee will carry out

Your trustee will also investigate your financial affairs to determine if any transactions you have been involved in may result in legal claims which can be pursued. This may include claims arising from transfers of assets or arrangements entered into with other parties to hide or conceal an asset. Common claims usually involve the transfer of real property to avoid a Trustee realising that asset. The Trustee has the power to clawback these transactions in certain circumstances.

Overseas travel

Whilst bankrupt, your overseas travel is restricted and should you want to travel to a different country, you will need to apply for your trustee’s consent to do so. Depending on your situation, your trustee can deny you the travel or impose conditions of your travel. However, your bankruptcy Trustee cannot deny a reasonable request to travel made by a compliant bankrupt.

The trustee may also require that you provide your passport to them for safe-keeping whilst bankrupt.


It is important to check if your professional licence can be held whilst bankrupt. Many professional associations, particularly those that involve monies held on trust such as real estate agents, solicitors or accountants, can revoke your licence to practice or put conditions on your licence if you become bankrupt.


The income that you generate, while bankrupt will be subject to a yearly income assessment and if you earn over a certain amount, you will be liable to paid half of the net after tax income over the amount to your trustee.

The current amounts of after-tax income you can earn before you have to pay amounts to your bankruptcy Trustee are as follows:

Number of Dependants Income ($)
0 59,031.70
1 69,657.41
2 74,970.26
3 77,921.84
4 79,102.48
5+ 80,283.11

A dependant means a person who satisfies all the following conditions:

  • The person resides with the bankrupt;
  • The person is wholly or partly dependent on the bankrupt for economic support; and
  • The income derived by the person during an assessment period is less than the current threshold amount being currently $3,708.

For a PAYG earner, calculating your liability for income contributions can be easy. For business owners, it is more difficult as the whole business needs to be reviewed and only certain deductions that are considered necessarily incurred are allowed. Please see our article on What happens to your income during bankruptcy for further information.

Are there any other options?

Deciding whether or not to go bankrupt can be complicated, particularly if your affairs are not straight forward. Sometimes there are alternatives to bankruptcy including negotiating debt settlements or other formal insolvency appointments to avoid bankruptcy.

Contact us for advice and assistance

If you are considering bankruptcy we are here to help. We can help you with general advice on the bankruptcy proceeds and its effects. If you are going to appoint us as your bankruptcy Trustees we won’t charge you for providing this general advice and assistance.

So, don’t delay things any further and get in touch with us on 1300 906 966 or send us an email at mail@cactusconsulting.com.au to arrange a free confidential initial discussion.

Posted on 30-05-20 in Bankruptcy Assistance, Personal Debts.