Bankruptcy can have serious consequences, however for a lot of people, the emotional and financial relief of wiping their debt far outweighs these consequences. Understanding the impact of bankruptcy on your own individual circumstances is essential when it comes to making the right decisions for your financial future.

People often turn to friends or family who have been through bankruptcy, or to the internet, for advice. This can be helpful, but some pretty common advice is actually incorrect. Initial advice about bankruptcy is often free. To make sure you’re properly informed you should speak to qualified and experienced personal insolvency specialists, such as ourselves.

To try and ensure you’re receiving clear advice on the effects of bankruptcy we’ve debunked seven common myths below:

1. You can’t travel overseas while bankrupt

False. Many people believe that bankruptcy automatically blacklists you from overseas travel and that if you try to travel overseas you will be arrested. The fact is, a bankruptcy trustee will generally let you travel overseas, as long as you’re complying with your duties to provide information and make any required payments such as income contribution instalments. You’ll also be required to provide information such as who is paying for your trip, your destination, dates of travel etc. however 9.5 times out of 10 your trustee will let you travel.

2. Going bankrupt is expensive

False. In reality, bankruptcy advice is usually free. Good sources of information include bankruptcy trustees, insolvency specialists and the AFSA website.

Filing for bankruptcy with AFSA is also free. Unless your affairs are complicated, the only time you’ll need to pay anything before going bankrupt is:

  1. If you appoint a registered trustee to be your bankruptcy trustee, and there are limited or no funds available in your bankruptcy to cover their associated costs. They will usually ask for some amount up front, usually up to about $10,000.
  1. If you need assistance completing your Statement of Affairs and Debtors Petition forms (which must be filed in order declare yourself bankrupt). This assistance shouldn’t be expensive – usually up to $800. If you’re asked to pay a large up-front sum for advice, find out what the payment covers and consider getting a second opinion.

3. You’ll lose everything in bankruptcy

False. Declaring bankruptcy does not mean losing everything. If you do own significant assets, your trustee may be required to sell them to help pay off your debts. However, most people are entitled to keep assets they own. Items excluded from bankruptcy include:

  • Normal household items such as furniture, appliances and sentimental items
  • A reasonable balance of cash and bank account balances to cover living expenses. Usually up to $2,000 will be able to be kept by a bankrupt.
  • Motor vehicles to the value of $7,900, or if financed up to this level of value above the loan debt
  • Tools of trade to the value of $3,750
  • Superannuation, unless irregular contributions were made before bankruptcy to protect funds

Your trustee may be required to sell:

  • Your interest in property, such as your home, if the value of your share is greater than the mortgage and selling costs
  • Shares or other investments

The biggest worry for most people is losing their home. However, even if your share in a property must be sold, you may be able to arrange for the co-owner, your spouse, family or friends to purchase it from the trustee. Our Partners at Pearce & Heers recently covered how a property can be saved in bankruptcy.

4. You can’t earn over a certain level of income in bankruptcy

Completely false. While bankrupt, there is no limit on the amount of money you can earn.

However, above a certain level, you are required to make contributions during each year of bankruptcy. This level is set by AFSA and is currently approximately $56,500 after tax for a person with no dependants. For someone with one dependant, this increases to over $66,000 and for someone with four or more dependants, it’s over $77,000.

If you earn above the relevant threshold you will need to pay 50% of every dollar over the threshold to your trustee.

For more information on how your income is affected by bankruptcy check out this article.

5. If you leave a debt off your bankruptcy form it’s not included in your bankruptcy

False. When you file for bankruptcy you prepare and submit a form detailing your assets and liabilities called a Statement of Affairs (SOA) form. While it is an offence to omit information from your SOA (which you could be prosecuted for) all debts, present or future, certain or contingent, which you are subject to at the date of bankruptcy are included.

Accordingly, while it’s important to complete your SOA as best as possible, accidentally missing a debt which you later become aware of will not affect the inclusion of that debt in bankruptcy.

6. If you can’t pay your debts, you have to go bankrupt

Again false, however bankruptcy may ultimately turn out to be your best option. Bankruptcy often has minimal financial impact for people with limited assets and earnings below the income contribution threshold. If you do have assets or a higher income, or need to avoid the restrictions of bankruptcy (for example, being a company director), one of the following options may better suit you:

7. You’ll never be able to get a loan again after bankruptcy

This is false too. Yes, your bankruptcy will be recorded on your credit report for seven years, and is permanently on the National Personal Insolvency Index (NPII). However, with close to 30,000 personal insolvency appointments each year, many credit providers now work to assist people with credit blemishes. If you’re struggling with debt to the extent that you’re considering bankruptcy maybe you shouldn’t be looking to jump right back into getting credit and loans as well?

8. Everyone will know you’re bankrupt

False. For many, what’s hardest to overcome is the feeling of shame or embarrassment. There is still very much a “stigma” surrounding declaring yourself bankrupt. Although your bankruptcy will be recorded, the only people likely to check this are banks or businesses you apply for credit from in the future. Besides that, only your creditors should be notified of your bankruptcy.

If you’re struggling with debt and want to discuss your options. including bankruptcy, get in touch on 1300 4 CACTUS or email us at


Posted on 25-07-17 in Bankruptcy Assistance.