What is bankruptcy?
Bankruptcy is a legal process where you are declared to be unable to pay your debts.
There are two ways of becoming bankrupt:
- you can volunteer to become bankrupt
- a person or business that you owe money can apply for you to be made bankrupt.
With bankruptcy you give up assets and control of your finances, either by agreement or court order, in exchange for protection from legal action from a person or business you owe money to.
Not all debts are covered by bankruptcy.
Should I volunteer to become bankrupt?
If you are unable to pay your debts and cannot come to suitable repayment arrangements with a person or business you owe money to, you may volunteer to become bankrupt.
This is a complex issue and there are serious consequences to becoming bankrupt.
You should get legal and financial advice before applying for bankruptcy.
There are alternatives to bankruptcy that might be more appropriate for you and which should be considered. Bankruptcy can have long term consequences. There are restrictions on the activities and responsibilities of a bankrupt person that you should understand if you are thinking about bankruptcy.
- Financial Rights Legal Centre factsheet on how bankruptcy works and alternatives you may have.
- Australian Financial Security Authority on 1300 364 785. It can supply you with all the necessary bankruptcy papers and refer you to a financial counsellor for assistance.
- Federal Circuit Court and Family Court of Australia and Federal Court of Australia for information on bankruptcy.
Reviewed: 20 September 2022