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Bankruptcy Myths and What You Need to Know


We believe in bankruptcy, it creates the opportunity for you to get past your insurmountable debt, reset and get going again. To do this and get your best result from bankruptcy it is important that you Understand Bankruptcy and how it will work for you.

To help, below is our list of the most common bankruptcy myths:


If you have a job, you cannot become bankrupt.

Incorrect, in fact, one of the main attributes of bankruptcy is that it protects your wages, to make sure you have money to keep a roof over your head and continue living your life.


Filing for bankruptcy – what you need to know:

  1. You can file for bankruptcy if you cannot pay your debts and live in Australia. It is as simple as that.
  2. If you do not live in Australia you can only file for bankruptcy if you have a residence or business in Australia.
  3. There is no filing fee and no minimum amount you must owe.


If you are a high-income earner, you cannot become bankrupt.

Incorrect, if you are unable to pay your debts and live in Australia or have property or operate a business in Australia, you are eligible to file for bankruptcy. Bankruptcy protects your wages. If you are a high-income earner, you may have to pay a small percentage of your income to your bankrupt estate, but the bulk of your income is protected for you to live, save, and plan your future.


High income and bankruptcy – what you need to know:

  1. If you are a high-income earner, monies to be paid to your bankrupt estate will depend on your level of income and number of dependents.
  2. A dependent is someone whose income does not exceed $3,741, resides with you, and receives your economic support.
  3. As a guide, a dependent could include your spouse who does not work, your children who reside with you, or you share joint custody with your ex-partner.
  4. If you are a high-income earner, we recommend you give us a call on 1300 764 197 to discuss your circumstances, work out whether you would have to pay income contributions and if that is your situation, we will give you our recommendations based on your circumstances.


Your creditors must agree before you can lodge for bankruptcy.

Incorrect. You decide and are in control. Your creditors are not involved in your lodging for bankruptcy. Creditors are informed of your bankruptcy after it has gone through.


Application must be made to the Court before you can lodge for bankruptcy.

Incorrect. The Court is not involved. You fill out a 23-page Form detailing your financial and personal details. Your completed form is lodged with a government department and if accepted, you then have the protection of bankruptcy. Do not stress about having to complete the 23-page Form, we can help you with that. Give us a call on 1300 764 197</span and we will have a chat about what your application will involve and how we can help with minimal cost to you.


If you become bankrupt, you will be interrogated by a meeting of your creditors.

Incorrect. Meetings of creditors have been replaced by electronic forms. It is very rare for a meeting of creditors to be held and if a meeting were required, it would most likely be coordinated electronically on a media platform, removing the need for you to be physically present.

You remain liable for your debts when you become bankrupt.

Incorrect. All debts caught by your bankruptcy become owing by your bankrupt estate, are written off by the creditors, and never return to you.


Your spouse will be liable to pay your debts if you become bankrupt.

Incorrect. Debts captured by your bankruptcy are extinguished and are no longer payable by you or any other party. Your spouse could only be liable if you both owe the monies, or your spouse signed a guarantee to pay your debt.


If you become bankrupt, your life partner must also file for bankruptcy.

Incorrect. Your life partner would only consider bankruptcy if he or she has debts in his or her own name which cannot be paid. Your debts are not owing by your partner unless the debt was incurred jointly, or your partner signed a personal guarantee for your debt.


Bankruptcy does not release you from taxes owing to the Australian Taxation Office.

Incorrect. All taxes owing to the ATO are caught by bankruptcy.


Bankruptcy and your taxes – what you need to know:

  1. all taxes owing up until the date of your bankruptcy, are captured by your bankruptcy even if the amount cannot be quantified due to your non-lodgment of tax returns.
  2. bankruptcy does not remove your obligation to prepare and lodge tax returns.
  3. bankruptcy does not prevent the ATO from prosecuting you for non-lodgment of outstanding tax returns.
  4. once outstanding tax returns are lodged the ATO will not prosecute you, you would only be prosecuted if your tax returns remain outstanding.
  5. a lot of people take comfort when preparing and lodging outstanding returns, knowing that the tax liability generated will be caught by their bankruptcy.
  6. if the ATO prosecutes you for non-lodgment of your tax return, you will receive a court fine. Court fines are not captured by bankruptcy and you will be required to pay the fine from your wages.
  7. It makes good sense to prepare and lodge outstanding tax returns given the tax debt will be caught by your bankruptcy and you will avoid the potential to be prosecuted by the ATO for non-lodgment of your tax return.


Bankruptcy does not stop you from having to pay your bank debt.

Incorrect. Unsecured loans are captured by bankruptcy, without regard to who your lender may be.


Bankruptcy and your bank debt – what you need to know:

  1. the shortfall on secured loans is captured by bankruptcy.
  2. if you have a property with negative equity, you are not required to continue paying the monthly loan payments once you become bankrupt.
  3. property with negative equity will be sold by your bank who will then lodge a claim with your bankrupt estate (not you) for the shortfall.


You will be barred from borrowing money in the future if you become bankrupt.

Incorrect. Bankruptcy will remain on your credit record for five years or two years after you are discharged from bankruptcy, whichever is longer.


Bankruptcy and borrowing money in the future – what you need to know.

  1. Once bankruptcy is removed from your credit record, lenders will access your loan application on its merits.
  2. Lenders will look at things like your credit record, savings history, employment stability, and ability to afford required loan repayments.
  3. Commencing a rigid savings plan during bankruptcy in your ordinary bank account is a great way to demonstrate to future lenders that you will be able to repay a debt.
  4. You can undertake actions during bankruptcy to start restoring your credit score. This can include having utility services (rent, electricity, and gas) in your name and making sure you pay your bills on time.
  5. We recommend you do not apply for loans whilst bankruptcy is on your credit record. When you apply for a loan it is recorded on your credit record as is when your loan application is rejected. Applications to low-tier lenders are also not good for your credit record.


To find out more, review our article ‘How to Improve Your Credit Score When Bankrupt’ by clicking here.


You will have nothing if you file for bankruptcy.

Incorrect. Bankruptcy is about giving you a platform to assist your financial recovery. You retain your household furniture and effects, motor vehicles, and tools of trade up to predetermined amounts, and all superannuation progressively accumulated over your working life which is held in a compliant fund.


Benefits of bankruptcy – what you need to know:

In addition to protecting your essential assets and liabilities caught by your bankruptcy being permanently written off, bankruptcy also provides you with the following benefits:

  1. During bankruptcy you can save without limit from your wages in your ordinary bank account and when you are discharged from bankruptcy, your accumulated savings will be yours, to spend as you wish.
  2. During bankruptcy, statutory superannuation paid by your employer goes to your complying superannuation fund, for your retirement.
  3. With the support of family members, assets that would normally be lost may be able to be saved to ease the disruption of bankruptcy on you and your family. A good example is the non-bankrupt co-owner of your family home, buying the interest of the bankrupt estate in your home, for you and your family to remain at the property.


Your bankruptcy will be in the newspapers.

Incorrect. Your bankruptcy is not advertised in the newspapers.


 Who will know about your bankruptcy – what you need to know:

  1. Your bankruptcy Trustee only deals with your creditors and entities pertaining to your financial affairs.
  2. The only publicly available record of your bankruptcy is the National Personal Insolvency Index (NPII), however, to obtain this information a fee must be paid, and therefore it is unlikely that this would be undertaken by anyone as a random act.
  3. Bankruptcy will be on your credit record for five years or two years from when you are discharged from bankruptcy.


Your bankruptcy trustee will turn up at your house to check your household furniture and effects.

Incorrect. Your household furniture and personal effects are protected for you. There is no reason for the Trustee to attend your property to inspect your household furniture and effects.


If you become bankrupt, your family home will be lost.

Incorrect. What will happen to your family home will depend on your circumstances.


Bankruptcy and your family home – what you need to know:

  1. It is important to note that the non-bankrupt co-owner has rights, and the Trustee of the bankrupt estate cannot deal with the property without the co-owners knowledge and agreement.
  2. The Trustee will work with the co-owner should the co-owner wish to stay living at the property.
  3. It is very common for the non-bankrupt co-owner to want to stay living at the family home and this normally involves the co-owner paying the bankrupt estate for the release of its equitable interest in your share of the property.
  4. There are many ways for you to remain living in your family home. The options depend on your circumstances. To explore options relevant to your circumstances, give us a call on 1300 764 197</span or email


You will be barred from travelling overseas while bankrupt.

Incorrect. Overseas travel for holidays or work can happen during bankruptcy.


Bankruptcy and overseas travel, what you need to know:

  1. During bankruptcy, you must obtain your Trustee’s written approval for your proposed overseas travel. This is a simple process.
  2. Overseas travel is a human right, and you would have to be running amuck for the Trustee to decline your travel request.
  3. If you have a sick family member living overseas and may need to travel overseas on short notice, it is possible to obtain a blanket travel approval from your Trustee.
  4. With your Trustee’s consent it is possible to work overseas, while bankrupt.


You are better advised to struggle on, rather than to become bankrupt.

Incorrect. Being financially compromised eats away and slowly destroys every aspect of your life. Bankruptcy provides a permanent solution to remove your debt and provides the foundations for you to have a fresh start. It is a mistake to struggle on, damaging your health, relationships, and employment before realising that your debt is destroying your life and you have no alternative but to look for a solution for your unresolvable debt.


You lose control of your bank account when you become bankrupt.

Incorrect. You continue to operate your own bank account while bankrupt, without the involvement of your bankruptcy trustee.


Bankruptcy and your bank account, what you need to know:

  1. Your Trustee is not a signatory to your bank account and is not able to access your bank account. The Trustee operates a separate trust bank account for your bankrupt estate.
  2. You can save in your bank account during bankruptcy.
  3. When you become bankrupt, if you have entered payment arrangements with your creditors, you should check to make sure you cancel any direct debits from your bank account.
  4. It is rare, but when you become bankrupt and your bank is notified of your bankruptcy it may freeze your account. If this should happen to you, get straight on to your Trustee. Your Trustee will urgently contact the bank for the freeze to be lifted.
  5. You can operate a debit card off your bank account, while bankrupt.


You will lose the funds in your super fund if you become bankrupt.

Incorrect. Funds accumulated over time in a regulated super fund are protected for your retirement.

Members of your family will be required to pay your debts if you become bankrupt.

Incorrect. No party is liable to pay your debts unless they incurred the debt with you or guaranteed your debt in writing.


Debt on property must be repaid, even if the property is sold for a shortfall.

Incorrect. Debt from property, which remains after the property has been sold, is caught by your bankruptcy.


You will never be able to be a company director if you become bankrupt.

Incorrect. You are only prevented from being a company director whilst you are bankrupt.


Bankruptcy and company directorship – what you need to know:

  1. You are only precluded from being a company director, while you are bankrupt.
  2. Once you are discharged from bankruptcy no application or approval is required, you are automatically able to be a director of a company.
  3. When you become bankrupt, you lodge Form 296 with ASIC for each company you are a director of, and ASIC will remove you from being shown as a director of the company. No fee is payable to ASIC.
  4. If you are bankrupt and need to be a director of a company, you can consider proposing a Composition under Part 4 of the Bankruptcy Act. If creditors approve a Composition, your protection from your creditors is maintained and you are returned to being able to be a company director.


You will lose your car and have no transport if you become bankrupt.

Incorrect. Your car is protected up to an auction value of $8,150

Bankruptcy and your car – what you need to know:

  1. You can have multiple vehicles whose value adds up to the threshold value.
  2. The threshold value is updated for CPI twice a year.
  3. You can assess the auction value of your vehicle on – use the wholesale value.
  4. it is normal for you to be able to keep a vehicle subject to finance provided the monthly loan payments continue to be paid and the equity (value of vehicle less loan payout) does not exceed the threshold value of $8,150
  5. If your vehicle is worth more than $8,150 you can organise for family or a trusted friend to pay the excess amount to your bankrupt estate – for you to continue using the vehicle.
  6. If your vehicle is worth more than $8,150 and you are unable to keep the vehicle, your trustee will sell the car and from the sale, proceeds give you $8,150 to buy another vehicle.

If you have any questions on bankruptcy or would like to discuss your situation, please give us a call on 1300 764 197 or email: and we will be happy to answer your questions.