If you can’t pay your debts, don’t make your situation worse…


If you can’t pay your debts, it’s understandable that you would be under significant pressure. You want to avoid going bankrupt and losing everything you own.

This pressure can often lead to people making poor financial decisions that land them in even greater trouble.

There are six main things you SHOULD NOT do if you can’t pay your debts and are facing bankruptcy. These are:

  1. Transfer assets for less than fair value
  2. Borrow money from family and friends if it can’t be repaid
  3. Pay certain creditors in priority to others
  4. Put off dealing with your debts
  5. Draw money from your super fund
  6. Obtain advice from unregulated and unqualified advisors

1. Transfer assets for less than fair value

If someone facing bankruptcy owns a home (usually with a spouse) saving it will usually be a priority.

It is certainly possible to save your home, as discussed here and here. However, many people think that simply transferring their interest in a property to the co-owner will solve the problem.

This is absolutely the wrong thing to do and in certain circumstances can lead to imprisonment of up to five years.

Remember: If you want to sell or transfer assets prior to bankruptcy, do it properly for fair value. You may even use the funds you receive to try to settle creditors’ debts to avoid bankruptcy!

2. Borrow money from family & friends if it can’t be repaid

It is unfortunately a common scenario that, where people can’t borrow money from a bank, they borrow from family and friends. This is only a suitable option if it will result in all your unrelated debts being paid in full so that you aren’t at risk of bankruptcy and can pay off your debts to family over time.

If you are absolutely set on borrowing money from family, at the time of advancing the monies your family members should consider taking security over your assets (property, vehicles and other investments, etc.) so that they have greater protection should you be made bankrupt.

3. Pay certain creditors in priority to others

This may involve you paying debts owed to related entities (such as companies and/or family members) before other unrelated creditors.

These payments can be considered ‘unfair preference payments’ if made within six months of you declaring bankruptcy or the date that your creditor’s petition was issued.

In such cases, a trustee may recover the payments for the benefit of your bankrupt estate.

4. Put off dealing with your debts

It’s easy to be overwhelmed if you can’t pay your debts. This can lead to you avoiding making any decisions on your financial future because it is all too much.

However, proactively dealing with your debts can sometimes help you avoid bankruptcy.

The sooner you act, the greater chance you have of successfully settling the debts you owe. If you cannot achieve this, at least acting before your creditors do means you can choose when, how, and with whom you go bankrupt.

By then, you would have been able to receive reliable advice from a bankruptcy trustee on the effect that bankruptcy would have on you.

5. Draw money from your super fund

If you can’t pay your debts and end up bankrupt, assuming you haven’t made any large transfers to your super fund to avoid creditors getting the money, your superannuation is protected.

This means a bankruptcy trustee cannot touch your super. Everything in your fund at the date of bankruptcy will remain yours.

Drawing anything from your super before bankruptcy means this money WILL be taken by your bankruptcy trustee.

If you can’t pay your debts, don’t jeopardise your future by sacrificing your super in an effort to avoid bankruptcy.

6. Obtain advice from unregulated & unqualified advisors

There are many unregulated advisors and firms out there offering services to people facing bankruptcy to protect their assets and avoid paying creditors.

In many cases, these advisors promote illegal actions to try to frustrate trustees and creditors.

Unfortunately for bankrupts that follow this advice, they are the ones left holding the can when it comes time for criminal action to be taken by AFSA.


If you can’t pay your debts and are facing bankruptcy, we offer reliable advice on what you should do next. Get in touch on 1300 4 CACTUS or chat with us via the live chat window on our site.


Posted on 17-04-18 in Bankruptcy Assistance.