Bankruptcy is designed to provide an insolvent individual (the debtor) with a fresh start to move on with their life and allow creditors the opportunity to recover their debts from the debtors available assets.

As a bankrupt, you will usually be bankrupt for 3 years and 1 day. However, this could be extended for up to 5 or 8 years if you do not co-operate with your Trustee.

A registered Personal Insolvency Trustee (Trustee) will be appointed to your bankrupt estate and is required by law to realise your assets (subject to certain exceptions discussed below), investigate your past financial affairs, and if sufficient funds are recovered, distribute these funds to your creditors in accordance with the priorities set out in the Bankruptcy Act.

In Bankruptcy, you can keep the following assets:

• A motor vehicle used as the primary means of transport up to a value indexed every six months by the Australian Financial Security Authority (AFSA).
• Tools of trade up to a value indexed every six months by AFSA.
• Household items considered necessary to allow you to carry on a reasonable standard of living, for example, clothes, TV, computer, and household furniture.

Most debts are included in the bankruptcy, and creditors cannot continue to pursue you. They must deal with your Trustee.  Some exclusions are:

• HECS debts.
• Child Support / Spousal Support.
• Fines and penalties imposed by a Court.

During Bankruptcy, you must co-operate with your Trustee and are subject to the following restrictions:

• Overseas travel, unless permitted by your Trustee.
• Obtaining Credit: you must disclose that you are bankrupt if you are to incur credit greater than a certain value indexed every six months by AFSA.
• Earnings over a threshold amount: you may be liable to make income contributions to your Bankrupt estate if you earn any amount greater than a certain value indexed every six months by AFSA.
• Directorships: you cannot be the Director of a Company.

If you have transferred assets out of your name prior to your bankruptcy and have not been paid fair value for them, then the Trustee can recover those assets.

There are two ways an individual can be made Bankrupt:

1. Voluntary Bankruptcy (Debtor’s Petition)If you have insufficient assets from which to pay your creditors in full, then you may become bankrupt voluntarily.  You can enter into voluntary bankruptcy and select your own Trustee, who will then forward you the appropriate paperwork and request you complete a Bankruptcy Form.
2. Court Ordered Bankruptcy (Sequestration Order) (Creditor’s Petition)If you owe a creditor more than $10,000, a creditor may apply to the Court for a sequestration order to make you bankrupt, and they will choose your bankruptcy Trustee.It is important to note the 3 year and 1 day bankruptcy period will commence from the day your Bankruptcy Form is accepted by AFSA.