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    Bankruptcy is a legal process where someone who can't pay their debts can get relief from an obligation to pay some or all of their debts.

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

    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 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.

    If you receive a Bankruptcy Notice or someone is threatening to bankrupt you, get immediate legal advice.

    Strict time limits apply to respond to court proceedings and/or bankruptcy notices. It’s important to get immediate legal advice.

    Becoming bankrupt

    There are 2 ways to become bankrupt:

    AFSA is responsible for the administration and regulation of bankruptcy in Australia and can give you information and the forms you'll need to apply for bankruptcy.

    Consequences of bankruptcy

    If you become bankrupt, a trustee will be appointed to take over your financial affairs. 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 while bankrupt.

    There are serious consequences to becoming bankrupt, including:

    • your bankruptcy being permanently recorded 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
    • your ability to get rental accommodation
    • your ability to get some insurance contracts
    • your ability to access some services such as utilities and telecommunication services.

    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).

    It’s important to note that if you have a mortgage over your home, the trustee will own your share of the property. They may allow you to continue to pay the mortgage repayments so that you can continue to live in the property. They may also require the sale of the property. It is very important to get legal advice before filing for bankruptcy if you own a home.

    Debts you must pay regardless of bankruptcy

    You will still have to pay some debts even though you have become bankrupt. Some debts are not included in the bankruptcy (even though you must tell the Trustee about these), some debts are payable during and after bankruptcy and others are only payable after bankruptcy. These include:

    • court imposed penalties and fines
    • maintenance debts (including child support debts)
    • 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
    • unliquidated debts (eg car accidents) where the amount payable for the damage hasn't been fixed before the date of bankruptcy—there are some exceptions
    • debts incurred by fraud
    • 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.

     Please note: joint debts owed by the bankrupt will still be payable by the non-bankrupt co-borrower.

    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 become 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
    • have received a court claim, a creditors petition or a Bankruptcy Notice
    • 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, insurers and bankruptcy matters.

    The following organisations may also 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.

    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.

    LawRight Self Representation Service (Federal) gives legal advice and help to people involved in civil proceedings in the Federal Circuit and Family Court of Australia 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.

    LawRight 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.

    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.

    Australian Financial Complaints Authority (AFCA) gives independent dispute resolution for unresolved complaints about financial services providers and credit reporting agencies.

    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:

    if the amount is less than $25,000.

    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 give you 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.

    Disclaimer: This content is for general purposes only and not legal advice. If you have a legal problem, please contact us or speak to a lawyer. View our full disclaimer.

    Last updated 30 March 2023