How Are Bankruptcies Paid For in Australia?

Many individuals and companies end up crippling debt that creates financial problems for them, ultimately leading to bankruptcy. Bankruptcy can relieve you from most of your debt and allow you to start fresh, but it has a lasting impact. While bankruptcy can help you out of your financial situation, it doesn’t come free.

Bankruptcy Advisory Centre - How Are Bankruptcies Paid For in Australia?You might be wondering how your debts are paid after you declare bankruptcy. Does the government pay, or do you have to pay? Let’s find out how are Bankruptcies paid For in Australia

There isn’t any fee to file for bankruptcy, and there isn’t any maximum or minimum income or debt amount you must be eligible to apply for bankruptcy. However, you do have to make payments for certain things during your bankruptcy.

Can You Go to Jail for Debt Australia?

One thing to note is that debt is always a civil matter. It’s between you and the person you owe money to. If you can’t pay your loan back, you don’t get a criminal record, and you don’t go to prison, and that’s the bottom line.

Alternatives to Bankruptcy

If you are a non-business, insolvent debtor with no valuable properties, then bankruptcy could provide you with a fresh financial situation without being constantly bothered by your creditors and the fear of any legal action. If you have a valuable property under your name, then bankruptcy could be a devastating experience as you could face a loss of income and assets. Other options, such as Debt Restructuring or a Debt Agreement, may be a better option for you, but if Bankruptcy is your last resort, it can still give you a way out of a tricky financial situation if done correctly.

Types of Bankruptcy

There are three types of bankruptcy available in Australia.

  • Voluntary Bankruptcy: If a business or person concludes that they cannot financially service their credit obligations, they can declare themselves insolvent. This is a process whereby you apply to be declared bankrupt, and an appointed trustee will govern the process.
  • Forced Bankruptcy: A creditor can petition to have you declared bankrupt if you fail to keep to the terms of that agreement. The amount owing to them must be more than $10,000, and the petition needs to be presented to the Federal Court of Australia.
  • Debt Agreements as an Alternative to Bankruptcy: A Part IX/9 Debt Agreement is between a delinquent debtor and its creditors. Instead of a Trustee selling your assets, you offer a repayment plan over a period (maximum of three years). It is unlikely that creditors will be repaid in total during this period. At the end of the repayment period, your debts are wiped, and the creditor cannot pursue you for the unpaid portion of the debt.

How Are Bankruptcies Paid For in Australia?

The person filing for bankruptcy is the one who pays for the bankruptcy, either the individual or the creditor in a forced bankruptcy. If you declare bankruptcy, you must pay the court filing payment, which also helps partially fund the court system and other bankruptcy case aspects.
Sometimes, the trustee might get your fee waived depending on your income. If approved, the bankruptcy court handles the payment and ensures you receive the necessary bankruptcy services to complete the case.

However, fee waivers are rare and are only granted when it is proved the individual can’t afford to make the payment even when the bankruptcy has been declared, and they don’t have to pay the debts.

How Are Debts Paid in Bankruptcy?

Your debts are not typically paid in full when you declare yourself bankrupt. A trustee is appointed to you. He evaluates your financial situation and your assets to pay some of your debt by:

  • Selling your assets
  • Making compulsory payments

The compulsory payments are the amount you must pay monthly if you earn over a specified amount.

Your trustee can claim and sell most of your assets and use the proceeds from the sale to repay your creditors. The assets might include lottery winnings, tools, bank balances, vehicles, and real estate.

When you apply for bankruptcy, you must declare all your assets and will face penalties if you fail to disclose any information to your trustee. The balance you owe is eliminated once you have been discharged from bankruptcy. However, certain debts are not covered in the bankruptcy that you would still have to repay, including student loans, taxes, court-ordered child support and alimony.

Assets That Can and Can’t Be Claimed During Bankruptcy

The debts in bankruptcy in Australia are paid mainly by selling off your assets. Here are the assets you own that your trustee can claim and sell off to pay off your debts during the bankruptcy and the assets they can’t sell:


You get to keep the vehicle you mostly use for transportation up to a certain amount. When the value of your vehicle exceeds the specified amount, your trustee can claim it to pay your debts.

House and Other Properties

Any house or property you own can be claimed by your trustee and sold to repay your creditors.

Cash or Bank Balance

Your trustee can claim your cash and the amount you have in your bank when you declare bankruptcy. However, you will still have sufficient money to cover your basic living expenses.

Money Received During Bankruptcy

The money you receive throughout your bankruptcy is not included in your typical income. This might consist of compensation payments, gifts, inheritance money, and superannuation. All these payments are protected, and the trustee can’t claim them to repay your creditors.

However, certain types of payments are not protected, including lottery winnings or cash prizes. If you receive these payments during your bankruptcy, they can be used to pay your debts.

If you buy a vehicle, house or other asset using the protected money, this asset would also be protected. However, there are some exceptions. For instance, if you purchase an asset using 100% protected money, it can’t be claimed. But if you use only 20% of the protected money and 80% of the unprotected money, then your trustee can claim the asset and refund the 20% protected money.

Tools of Trade

The trustee can’t claim the tools you utilise to earn a living if they are valued below a specified amount. To estimate their value, you must determine the current market value of the tools instead of how much you paid for them. They are protected if the value is below the specified amount, and you can keep them.

Household Belongings

Most of your household belongings of reasonable value can’t be claimed, for instance, appliances and furniture.

Debts You Have to Pay in Bankruptcy

Most unsecured debts, such as utility and credit card bills, are included in the bankruptcy. You don’t have to make payments for these once you have declared bankruptcy until you become bankrupt. However, you still must pay the secured debt during bankruptcy. This can include car loans and mortgages. If you can’t make the payments for your secured debts, you will have to surrender the secured items.

Can You Pay Some Debts During Bankruptcy?

Even after declaring bankruptcy, you can voluntarily make some payments to pay off your debts. You will still be protected from creditors taking any legal action against you for a debt included in the bankruptcy.
Remember that creditors have the right to decide not to provide further services while you pay off your debts.

While bankruptcy is a challenging experience, it is an opportunity to fix your financial situation. However, you would still be required to continue making payments for secured debts that you owe that are not included in the bankruptcy.
Understanding the bankruptcy process in Australia is essential to ensure you make the right decision to declare bankruptcy. Since your debt is paid off by selling your assets and compulsory payments, you need to understand your options by consulting an experienced bankruptcy professional.

How Are Bankruptcies Paid for in Australia?

“Going bankrupt is a relatively straightforward process, and once you’ve completed the process, you are legally free from repaying any debts; nevertheless, several exceptions exist, and there are consequences and costs to consider. We are here to help you understand How Are Bankruptcies Paid For in Australia and ensure you fully understand the process and all steps involved in filing for Bankruptcy, the 3 types of bankruptcies, the employment restrictions for bankrupts and how long is bankruptcies in Australia. We try to make the process as smooth as possible.”

Andrew Bell Bankruptcy Advisor

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With over 30 years of experience in debt solutions and bankruptcy in Australia Andrew can find a solution for you.

“Nothing is more satisfying to me than knowing that I’ve helped someone get back on their feet by guiding them through the Bankruptcy Process. Rest assured, you’re in good hands with me as we solve your financial problems together.”

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