Bankruptcy Myths and What You Need to Know

What You Need To Know About Bankruptcy

Unfortunately, there are many myths out there about bankruptcy. The truth is, each individual has a unique set of circumstances that needs to be addressed when considering this option; and it is important to get the facts before making any decisions.

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. With the right advice and guidance on hand, you can make an informed decision about whether or not filing for bankruptcy is the best option to take at this point in your life.

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. If you are employed, bankruptcy can be a way to get your finances back on track. It is there to give you the breathing room and fresh start that many require in order to become financially stable again.

  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.

  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 $$4,253, 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 794 492 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 794 492 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 or anyone attending your home.

In addition, to become bankrupt you will be required to complete an online form known as a Bankruptcy Form which sets out details about your income and liabilities. The public part of this form is sent to all creditors in order for them to assess and understand your financial position. Finally, it is important that you seek professional advice from a qualified source such as an approachable Insolvency Practitioner who can advise you on the best course of action if you are facing bankruptcy proceedings. We are here to help you and if you would like, we can introduce you to a Bankruptcy Trustee for you to discuss your circumstances and explore how bankruptcy would work for you.

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.(needs bigger font and to be bold)

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.

However, it is important to note that if your partner has co-signed a loan with you, the creditor may seek payment from him or her after you become bankrupt. Therefore, it is important for couples to discuss their financial situation and make informed decisions regarding filing together or separately. It is worthwhile for couples to follow this link to consider what affects bankruptcy has on their partner.

Bankruptcy Does Not Release You From Taxes Owing To The Australian Taxation Office

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

  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. Bank unsecured loans are captured by bankruptcy, without regard to who your lender may be.

  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.

  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

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.

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.

Bankruptcy also provides you with the peace of mind that you have taken control of your financial situation, leaving you free to start rebuilding your financial life. With a fresh start in place and no debt, bankruptcy can be used as an effective way to break free from debt and get your finances back on track.

Your Bankruptcy Will Be In The Newspapers

Incorrect. Your bankruptcy is not advertised in the newspapers.

  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 will, however, be reported to credit bureaus , for it to be on their reports for the period of your bankruptcy plus the following two years. This means that if you apply for a loan during bankruptcy or in the two years following your bankruptcy your proposed lender will have access to this information when evaluating your application for new credit. It is important to note that bankruptcy does not permanently stay on your credit record. With diligent effort you can rebuild your credit rating over time and start applying for new loans and other forms of credit again in the future.

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. The Bankruptcy Trustee is, however, responsible for ensuring that you are not hiding any assets or money. They may, therefore, ask to see proof of ownership and receipts for the items in your home. This includes cars and other vehicles that you own. The Trustee will also check your bank statements and other financial records as part of their investigation into your financial affairs. If they suspect that you have been dishonest in declaring all of your assets then they may need to undertake a thorough investigation into your financial affairs.

If You Become Bankrupt, Your Family Home Will Be Lost

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

  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.

Most bankrupt persons are able to remain living in their family home if they take appropriate advice from a qualified professional. To discuss your specific circumstances we recommend that you give us a call on 1300 794 492 or email We can also introduce you to an approachable bankruptcy trustee to discuss your circumstances. It is important that you speak with a licensed insolvency practitioner who will be able to advise on the best solution for your circumstances and help you navigate through the bankruptcy process. It is important to identify and discuss solutions such as negotiating with creditors, setting up payment arrangements or exploring alternative debt resolution options such as a Debt Agreement or Part 9 Debt Agreement where possible.

To explore options relevant to your circumstances, give us a call on 1300 794 492 or email

You Will Be Barred From Travelling Overseas While Bankrupt

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

  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.

It is important to remember that while overseas, you must continue to meet all your obligations under the Bankruptcy Act. This includes providing all household and business income and expenditure details to the Trustee.

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. Bankruptcy is a viable option for those who have exhausted all other options and are struggling to pay their debts each month. By declaring bankruptcy, it frees up your income so that you can start rebuilding your life. It gives you peace of mind, since it relieves the pressure of debt collection agencies trying to collect money you don’t have in order to satisfy your creditors.

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. If you find yourself asking can a bankrupt person have a bank account we have detailed a response below:

  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 without limit 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. The Superannuation Industry (Supervision) Act 1993 ensures that any money you have put into a super fund, is held in trust for your retirement and cannot be accessed by creditors if you become bankrupt. Any funds that are not protected from bankruptcy are those that have been contributed to an unregulated super fund or monies paid out of the regulated fund prior to reaching preservation age. Your superannuation trustee has a duty to ensure that your money is invested in accordance with the law and regulations so it can grow over time without being at risk from legal action or insolvency. Therefore, if you do become bankrupt, rest assured knowing your hard-earned superannuation savings won’t be affected as long as they remain within a regulated superannuation fund.

Members Of Your Family Will Be Required To Pay Your Debts If You Become Bankrupt

Incorrect. No party,family, friend or associate is liable to pay your debts unless they incurred the debt with you or guaranteed your debt in writing. Unless members of your family are specifically listed in the paperwork as a borrower or a guarantor on the loan, your family will not be required to make payments towards your debt.

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. In bankruptcy, the trustee collects all of your assets and pays off debt with the proceeds. This means that if you owe money on a mortgage or other secured loan, and then sell your property at valuation but for less than what is owed to creditors, those debts will be discharged when you file for bankruptcy. In other words, when debts are discharged through bankruptcy they do not need to be paid back even if the property has been sold at a loss.

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.

  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.

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, your bankruptcy is annulled 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 [protected_property property=”vehicles” number_of_vehicles=”1″]

  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 [protected_property property=”vehicles” number_of_vehicles=”1″]
  5. If your vehicle is worth more than [protected_property property=”vehicles” number_of_vehicles=”1″] 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 [protected_property property=”vehicles” number_of_vehicles=”1″] and you are unable to keep the vehicle, your trustee will sell the car and from the sale, proceeds give you [protected_property property=”vehicles” number_of_vehicles=”1″] 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 794 492 or email: and we will be happy to answer your questions.