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Bankruptcy

Bankruptcy is a legal process where someone else takes over your finances as you're unable to pay all your debts.

You should get help from a financial counselling service and legal advice before applying for bankruptcy. Becoming bankrupt  has has serious consequences, and there may be other options available to you.

If you become bankrupt, a trustee is appointed to look after your affairs.  When you are discharged from the bankruptcy you will be released from most of your debts.

If you’re struggling to pay your debts, you can apply to become bankrupt or a creditor can apply to make you bankrupt.

If you owe money that you can’t afford to repay, you should see a financial counsellor and and get legal advice.

If someone has started court proceedings against you to recover a debt or is threatening to seize your property, get immediate legal advice.

Becoming bankrupt 

There are 2 ways to become bankrupt:

  1. You can lodge a debtor’s petition to become bankrupt with the Australian Financial Security Authority (AFSA).
  2. A creditor can petition for you to become bankrupt if you owe them more than $5000.

AFSA is responsible for the administration and regulation of bankruptcy in Australia, and can give you information about bankruptcy and provide you with the forms you'll need to petition for bankruptcy.

Consequences of bankruptcy

If you become bankrupt, a trustee will be appointed to take over your financial affairs. In order to pay creditors, the trustee can:

  • sell your assets (unless they are protected) 
  • recover any income you earn over a certain limit
  • investigate your financial affairs (and in some situations, recover property that you have transferred to someone else before going bankrupt).

AFSA has information about your obligations are while bankrupt.

There are serious consequences to becoming bankrupt, including:

  • a permanent record of your bankruptcy on the National Personal Insolvency Index
  • your bankruptcy being listed on your credit report for 5 years
  • any assets, which are not protected, possibly being sold
  • not being able to travel overseas without the written permission of the bankruptcy trustee
  • not being able to hold the position of a director of a company
  • not being able to hold certain public positions
  • being restricted or prevented from continuing in some trades or professions
  • your ability to borrow money or buy things on credit being affected.

You may still have to pay some debts during and after bankruptcy.   

You’re allowed to keep some assets when you become bankrupt. These include:

  • most household items
  • tools used to earn an income up to an indexed amount
  • vehicles where the total equity of the vehicle is less than an indexed amount
  • most regulated superannuation balances and most payments received from superannuation funds after you go bankrupt (superannuation you withdraw from your superannuation account before you go bankrupt are not protected)
  • life insurance policies for you or your spouse and any proceeds from these policies received after your bankruptcy
  • compensation for a personal injury (eg injury from a car accident) and any assets bought with this compensation
  • assets held by you in trust for someone else (eg a child’s bank account)
  • awards or trophies which have sentimental value (if creditors agree).

Payment of debts during and after bankruptcy

You'll still have to pay some debts even though you have become bankrupt. These include:

  • court imposed penalties and fines
  • student assistance or supplement loans (HELP – Higher Education Loan Program, HECS – Higher Education Contribution Scheme, SFSS – Student Financial Supplement Scheme)
  • debts you incur after you become bankrupt
  • debts you are liable to pay due to accidents (eg car accidents) where the amount payable has not yet been fixed (unliquidated damages)—there are some exceptions to this.

Payment of debts after bankruptcy

At the end of your bankruptcy you'll be released from most of your debts, but there are some debts you'll still need to pay. 

These include:

  • debts incurred by fraud
  • maintenance debts (including child support
  • accumulated HECS and HELP debts
  • debts you’re liable to pay due to wrongdoing (eg compensation for injury) where the amount to be paid has not yet been fixed (unliquidated damages)—there are some exceptions to this. You should seek legal advice.

AFSA has a debt comparison table that sets out what debts you will have to pay if you go bankrupt.

Bankruptcy and family law proceedings

If you go bankrupt while you have a family law case for property settlement, the family courts can deal with your bankruptcy. Bankruptcy can be dealt with at the same time as property or spousal maintenance. It doesn’t matter if you’re bankrupt at the start or become bankrupt during the case.

You should tell the court and everyone involved in your case if you’re bankrupt or in a personal insolvency agreement. You must also tell your bankruptcy trustee if you’re involved in any property or spousal maintenance cases. The cross-over of family law and bankruptcy law is complicated. Get legal advice.

How long does bankruptcy last?

Bankruptcy usually lasts for 3 years and 1 day. This period can be extended to up to 8 years in some situations. You should get legal advice.

Do I need legal advice?

You may need legal advice if you:

  • are considering bankruptcy because you can't pay your debts 
  • are struggling to pay a loan and there is a mortgage over your home
  • have received notice that your creditor is going to repossess your home or other asset
  • need help negotiating with your creditors.

How to get legal advice

We don’t give advice on business debts, disputes about business partnerships, or about debt-related court proceedings outside of Queensland.

We may give general legal advice on debt matters in Queensland. Our Consumer Protection Unit may give specialist legal advice and help with disputes with credit providers and insurers.

The following organisations may be able to give legal advice.

Caxton Legal Centre Consumer Law Service gives free specialist legal advice to people with consumer and consumer credit legal problems, including loans, bankruptcy, debt collection, mortgage brokers and financial advisors.

Gladstone Community Advisory Service gives free legal advice about consumer matters.

Cairns Community Legal Centre - Consumer Law Service gives legal help in the areas of consumer credit matters, consumer product disputes, consumer service disputes, consumer debt matters, bankruptcy and other consumer law matters for socially and financially disadvantaged members of the community.

QPILCH Self Representation Service (Federal) gives legal advice and help to people involved in civil proceedings in the Federal Circuit Court or Federal Court for matters involving bankruptcy and consumer law. The service may also help with drafting documents and correspondence relating to your legal matter. They do not provide representation.

QPILCH Refugee Civil Law Clinic gives free legal advice and help to refugees, humanitarian entrants, asylum seekers and temporary protection visa holders, including advice about debts, loan agreements and bankruptcy.

QPILCH Mental Health Law Clinic gives legal advice on civil law issues arising as a result of a person's mental health problem, including credit and debt law issues.

Students Legal Service - University of Queensland gives free legal advice to students of UQ, including advice about consumer matters and responding to letters of demand.

National Legal Aid can refer you to Legal Aid Commissions if your debt or court proceedings are in another state.

Queensland Law Society can refer you to a specialist private lawyer for advice or representation.

Who else can help?

These organisations may also be able to help. They don’t give legal advice.

Financial Ombudsman Service (FOS) gives independent dispute resolution for unresolved complaints about financial services providers and credit reporting agencies.

Credit and Investments Ombudsman (CIO) is an independent dispute resolution scheme facilitating the resolution of complaints between consumers and financial services providers who are participants of the scheme. Participants of the scheme include non-bank lenders, finance brokers, credit unions, building societies, debt collection firms, financial planners, trustees, servers, aggregators, mortgage managers etc.

The ACCC and ASIC produce a publication about your rights and responsibilities when you owe a debt, called Dealing with Debt

ASIC's MoneySmart website has information that may be able to help you with disputes about financial products and services.

The MoneySmart website gives independent guidance for consumers making decisions about their personal finances, including information about:

Australian Financial Security Authority (AFSA) has information about bankruptcy, including how to become bankrupt, making a person bankrupt, what debts are covered, consequences of bankruptcy and more.

Office of the Australian Information Commissioner handles complaints about misuse of personal information and inaccurate credit reports.

Queensland Civil and Administrative Tribunal (QCAT) can hear:

You should try and first resolve your dispute with the other party before asking the QCAT to hear your dispute.

The following Australian credit reporting agencies can provide you with a free copy of your credit history:

Energy and Water Ombudsman offers a free service to help resolve disputes with electricity, gas or water suppliers.

Telecommunications Industry Ombudsman (TIO) provides free alternative dispute resolution scheme for unresolved complaints about telephone or internet services.

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