Debt Options, Thresholds and 2026 Rules
How bankruptcy works in Australia: 3 years and 1 day, trustees, travel and what it affects
How personal bankruptcy works in Australia in 2026, from applying through AFSA to discharge after 3 years and 1 day, debts released and not released, travel, credit and jobs.
Bankruptcy in Australia is a legal process under the Bankruptcy Act 1966 in which a trustee takes control of your divisible assets and deals with your creditors, and in return you are released from most of your unsecured debts when the bankruptcy ends. You can apply yourself online through the Australian Financial Security Authority (AFSA) with no application fee, or a creditor owed at least $10,000 can apply to court to make you bankrupt. Bankruptcy normally ends automatically 3 years and 1 day after your statement of affairs is filed, but it can be extended to 5 or 8 years if the trustee objects. During it you may pay income contributions, need written permission to travel overseas, must disclose your bankruptcy before obtaining credit above an indexed amount, and may lose certain roles. The record on the National Personal Insolvency Index is permanent.
This guide sits under the overview of debt help options. It is general information, not legal advice.
Two ways into bankruptcy
| Route | How it starts | Key points |
|---|---|---|
| Debtor's petition (voluntary) | You lodge a bankruptcy form and statement of affairs with AFSA | No AFSA fee; AFSA can reject it in limited cases, such as if you could pay your debts |
| Creditor's petition (involuntary) | A creditor owed at least $10,000 gets a bankruptcy notice or proves another act of bankruptcy, then applies to the Federal Court or the Federal Circuit and Family Court | Usually follows a court judgment; you can oppose the petition |
If you need time, a debtor's intention petition lodged with AFSA can stop unsecured creditors taking enforcement action for 21 days while you consider options. It is itself an act of bankruptcy and is recorded on the NPII. If you have received a bankruptcy notice, read what to do about a bankruptcy notice.
Who runs your bankruptcy
Your trustee is either the Official Trustee, which is AFSA, or a registered trustee in private practice. Registered trustees are often used when there are assets to sell or a business. The trustee:
- takes control of and can sell divisible property,
- assesses your income each year and collects any income contributions,
- investigates your affairs, including transactions before the bankruptcy,
- pays dividends to creditors, after costs and the statutory charge,
- can object to your discharge if you do not cooperate.
What bankruptcy releases and what it does not
| Usually released at discharge | Usually not released |
|---|---|
| Credit cards, personal loans, overdrafts, buy now pay later | Debts incurred after the date of bankruptcy |
| Unsecured amounts left after a secured asset is sold | Court-imposed fines and penalties |
| Most utility, phone and medical bills | Child support and spousal maintenance (in most cases) |
| Most tax debts | Debts arising from fraud |
| Many Centrelink overpayment debts, unless they arose from fraud | HELP and other study loan debts are not provable (s 82(3AB)), so bankruptcy does not release them |
Whether a particular debt is released depends on its type and how it arose. Centrelink debts deserve care: Services Australia's ability to recover can depend on the circumstances, so check with a financial counsellor before assuming a social security debt will be released.
Secured debts are different. A home lender or car financier keeps its security; you either keep paying or the lender sells the asset, and any shortfall becomes an unsecured debt in the bankruptcy.
Your obligations while bankrupt
- Income contributions: if your assessed after-tax income is over the threshold for your number of dependants, you pay half the excess. From 20 September 2026 the base threshold is $77,886.90. See income contributions in bankruptcy.
- Overseas travel: you must get your trustee's written permission before travelling overseas, and the trustee can ask you to hand over your passport. Travelling without permission is an offence and a common reason for objections to discharge.
- Credit: you must tell a lender you are bankrupt before obtaining credit above an amount AFSA indexes. The same applies to buying goods on credit or by hire purchase.
- Business: if you trade under a name other than your own, you must disclose your bankruptcy to people you deal with.
- Information: tell your trustee about changes in address, income, assets and any inheritance or windfall during the bankruptcy, which can become available to creditors.
Effects on work, companies and home
- Company directors are automatically disqualified from managing corporations under the Corporations Act while bankrupt.
- Licences and professions: some trade, professional and security licences, and some public or board roles, are restricted or must be reported. Check with the licensing body before you file.
- Employment: most employers are not told, but some industries check the NPII or ask in their screening.
- Renting: landlords and agents may see the bankruptcy if they search the NPII or credit reports.
- Your home: your share normally vests in the trustee. See protected assets.
Discharge, extension and annulment
| Event | What happens |
|---|---|
| Automatic discharge | Normally 3 years and 1 day after your statement of affairs is filed |
| Objection to discharge | The trustee can extend the bankruptcy to 5 or 8 years for reasons such as failing to pay contributions, not disclosing income or travelling without consent |
| Annulment | Bankruptcy can be annulled by paying debts in full, by a composition accepted under section 73, or by court order if it should not have happened |
| After discharge | You are released from provable debts, but the trustee can still sell assets that vested before discharge, and the NPII record remains |
A 2017 bill would have cut the default period to 1 year, but it did not pass. Read the status of bankruptcy reform proposals.
Bankruptcy and your credit report
Bankruptcy is personal insolvency information on your credit report. According to the OAIC, it stays for the later of 5 years from the date you became bankrupt or 2 years from when the bankruptcy ends. With a 3-year bankruptcy, that is usually about 5 years from the start. See credit reports after a debt agreement or bankruptcy.
When to get advice
Get advice before filing if you own property, run a business, are a director, hold an occupational licence, expect an inheritance, have recently transferred assets to someone else, or have debts with a partner. The National Debt Helpline (1800 007 007), Legal Aid and community legal centres give free advice. AFSA's website has a consequences checklist that you must read before you lodge.
Frequently asked questions
How much does it cost to declare bankruptcy?
AFSA does not charge a fee to lodge a debtor's petition. Costs are paid from your estate: trustee fees and a statutory charge on money the trustee realises, plus any income contributions you are assessed to pay.
Can I keep my job if I go bankrupt?
Most people can. Some licences, regulated professions and director roles are affected. Check with your employer's policy, your licensing body and your trustee.
Can I go overseas while bankrupt?
Only with your trustee's written permission, applied for in advance. The trustee may impose conditions, such as paying outstanding contributions first.
Does my partner become bankrupt too?
No. Bankruptcy is personal. But your partner remains liable for joint debts, and jointly owned property can be affected. See joint debts, guarantors and partners.
Sources
- Australian Financial Security Authority — applying, consequences, travel, income, NPII
- Office of the Australian Information Commissioner — what stays on a credit report
- Federal Register of Legislation — Bankruptcy Act 1966
- National Debt Helpline — free financial counselling
- Services Australia — Centrelink debts and repayment arrangements
