bankruptcy obligations

4 Bankruptcy Obligations

We get asked a lot on what the Australians Bankruptcy Obligations are in Australia.

In almost all conversations people are surprised at just how easy the obligations are: they nearly expect me to say that there life is over… No, it won’t be.

In my experience, many people who are proceeding with bankruptcy should have done it years ago – if they had they would now be experiencing a stress free, debt free life. However, don’t dwell on the past.

A wise man once said:

“You can’t go back and change the beginning, but you can start where you are and change the ending” – C.S. Lewis

Many find the information from AFSA confusing and difficult to understand – we are here to help clarify and simply the whole process of bankruptcy for you.

The first step is to complete our FREE Online Bankruptcy Evaluation below – or call the bankruptcy hotline 1300 712 466. Alternatively if you’re ready to book a FREE bankruptcy phone appointment to go over the process and how it works for you – CLICK HERE to schedule a time with our bankruptcy specialist.

However, feel free to read or watch on to find out your current bankruptcy obligations.

With Bankruptcy it’s important to realise that it’s not suitable for everyone. It’s a legal process that allows you to be released from your debts. In doing so you must stick to some obligations for the duration of the bankruptcy period.

Bankruptcy lasts for 3 years + 1 day.

Also, there are a few debts that aren’t covered under bankruptcy

Debts taken out in fraud

HECS / FEE help debts

Parking infringements

Some court ordered debts

bankruptcy obligations

Bankruptcy Obligations in no particular order are:

A bankruptcy default will be lodged on your credit report. There’s 2 parts to bankruptcy, the first being 3 years which is the undischarged period where you are required to stick to your obligations.

Then after this period you have a 2 year discharged bankruptcy period.

During this 2 year discharged period you no longer have any obligations, but it will still remain on your credit file for this 2 year period.

After a total of 5 years from the date of the original bankruptcy acceptance date it will disappear off the credit report.

You won’t be able to get any type of credit or loans during the 3 year undischarged bankruptcy period. However, you will be able to apply for credit during the discharged bankruptcy period. Please note that you will most likely have a slightly higher interest rate as you will still have a bad credit score.

If you have payment arrears or you have a debt with a debt collector there’s a high chance that you have an “unpaid default” listed on your credit file already. So the fact is that your credit file is already affected.

Income indexation – during your bankruptcy if your income goes over a certain amount according to the bankruptcy index you will need to start paying back to the official trustee.

This is set up so that if you are earning a decent wage a small portion goes back to the creditors that were bankrupted.

The amount changes depending on the # of dependents, it ranges from $59,000 after tax with no dependents to approx. $80,000 after tax for 4 + dependents.

Every dollar over the index you must pay 50 cents to the trustee.

So if you were $1,000 “after tax” above the income threshold you would have to pay $500 to the trustee.

If you are above the threshold, in most cases the amount you would have to pay to the trustee is a tiny fraction of the amount of the debts. Most Australians are below the threshold, but it’s something you should check to make sure.

If you travel overseas during your bankruptcy period you must notify and get approval from your trustee. The process is simple and if you have stuck to your obligations your trustee will usually approve the travel.

What you need to do is complete the AFSA bankruptcy overseas travel application which will ask you questions to clarify.

  • Where are you travelling
  • Date you leave
  • Date you’re home
  • Reason for travel
  • Who’s paying

After you complete the application you must pay $150 for the application to be processed.

If you leave the country without getting approval the trustee may extend your bankruptcy. By law they can extend your bankruptcy up to 7 years.

Many people don’t believe they can leave the country whilst bankrupt, this is another myth. However, follow the process and you are completely safe.

You cannot be a director of a company or a trustee of a trust.

If you currently run a company you will need to wind the company down – we help with this part of the process.

You can still run a business but you must trade under your own name and ABN – if you don’t trade under your own name you must disclose to everyone you’re working with that you are bankrupt.

However if you just trade under your name and ABN you don’t have to disclose the fact you are bankrupt.

So, should you decide to trade as a sole trader whilst bankrupt. Once the bankruptcy period is finished you can restructure back into a company should you wish to choose to.

There are a very small number of occasions you can get an exception to operate a company, but this isn’t standard.

Running a business as a sole trader is a simpler set up so it will actually help in getting you a fresh debt free start.

You will be registered onto the National Personal Insolvency Index (NPII). This is a register that records all people in Australia that have declared bankruptcy.

You will stay on this register for life. However, it’s not a bad thing used to punish anyone. It’s just a necessary register to keep track of the bankrupt individuals in Australia

They are the main obligations under bankruptcy in Australia.

Now most people are wondering ok – the obligations are fine, but should I declare bankruptcy:

If you’ve made it this far answer 2 more questions:

  1. Calculate / add up the total amount of you debt
  2. Divide this debt by 3 – then divide by 52


That will give you the weekly debt amount you would have to repay if you could pay it off in 3 years.

Example: $50,000 total debt = $320 a week for 3 years.

If you can easily repay this amount without it causing you any stress then great. However, if not then bankruptcy could be for you:

You can check if it is suitable by calling the bankruptcy hotline 1300 712 466.

Or send a quick enquiry and we can help:

Hopefully this has given you a good grasp on the current bankruptcy obligations in Australia and how they might apply to your situation.

If you would like to watch a full 25 min that goes into more detail than just the bankruptcy obligations – CLICK HERE



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