How long does bankruptcy last?

If you’re struggling to manage your debts, you might have begun considering declaring bankruptcy to relieve you of skyrocketing monthly payments and interest rates. 

If you want to file for bankruptcy, it’s important to understand the essentials, from how long bankruptcy stays on your credit record, to the types of debt you’ll be able to clear. 

Let’s get to the following commonly asked questions: 

• How long do bankruptcies last in Australia?
• How long will bankruptcy affect me?
• How long until bankruptcy is forgiven?
• Does bankruptcy clear all debts?
• 3 types of bankruptcies in Australia
• How long does bankruptcy last on your credit report?

Q1. How long do bankruptcies last in Australia?

Bankruptcy in Australia typically lasts 3 years and 1 day after officially filing for bankruptcy and handing in your bankruptcy form. If you were made bankrupt by your credit provider, your bankruptcy period starts from the day you file an accepted statement of affairs. 

Q2. How long will bankruptcy affect me?

If you’ve declared bankruptcy, it will affect your credit rating for five years (from the date you became bankrupt) or for two years from when your bankruptcy ends. During this period, credit reporting agencies will be able to see your bankruptcy information.

Bankruptcy affects individuals in the following ways: 

• Your name will appear on the National Personal Insolvency Index permanently, making it harder to be approved when borrowing money.
• Bankruptcy affects the ability to travel overseas, as you’ll need written permission from your registered trustees. Overseas travel could be declined during your bankruptcy period.
• Your trustee can impede your ability to take legal action, is able to sell your assets to cover debts, and more. 

If you’re struggling to pay your debts and are considering bankruptcy, you’ll need to carefully consider the future impact that applying for bankruptcy could have on your future financial situation. While filing for bankruptcy can be a quick fix if you’re unable to pay your multiple types of debt, it can seriously affect your ability to take out lines of credit in the future. 

Q3. What are the alternatives to bankruptcy? 

If you’re looking for a debt solution, administering your bankruptcy isn’t the only option available to you. For debt relief, there are numerous personal insolvency agreement options, including: 

• Temporary debt protection (TDP). TDP graces you with a 21-day protection from being pursued by creditors while you seek debt information and decide how you’ll be paying your debts. This gives you adequate breathing space to devise a debt management plan. 
• Debt agreements. If you owe money to creditors, you can request a debt agreement that is legally binding. You’ll then negotiate to pay a percentage of your debts during a proposed period. 
• Personal insolvency agreements (PIA). Similarly to debt agreements, a PIA is a legally binding agreement between you and your creditor, allowing you to pay your debts in either a lump sum or in instalments. 

Q4. Does bankruptcy clear all debts?

Unfortunately, bankruptcy does not clear you of all debts incurred, only debts that are unsecured. Examples of unsecured debt include: 

• Credit cards 
• Personal loans
• Student loans 
• Medical bills 

Under the bankruptcy act, these debts will be cleared and you won’t need to pay them. Any secured debts will still need to be paid, or you could face repossession. Types of secured debt include: 

• Tax debt/tax debts 
• Mortgages 
• Auto Loans 

While bankruptcy does provide debt relief, it doesn’t wipe all debts. You’ll still be required to keep up with mortgage payments to avoid repossession. If you do fail to pay secured debts, they’ll stay on your public record. 

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Q5. 3 types of bankruptcies in Australia

There are three main types of bankruptcy in Australia that are typically cleared 3 years and one day, or 36 months after bankruptcy is filed. These include: 

1. Voluntary bankruptcy. This is when an individual voluntarily files for bankruptcy using a bankruptcy form for the purposes of clearing debts and providing relief. Most unsecured debts are covered by bankruptcy, including credit cards, student loans, and medical bills.

2. Involuntary bankruptcy. Creditors can decide to take lenders to court in order to get back the money owed. If the court decides to issue a sequestration order, you’ll be declared involuntarily bankrupt. 

3. Business bankruptcy. If you’re a company director that can’t pay off business debts, you can file for business bankruptcy. During this time you’ll undergo a business valuation to make sure you can’t pay your debts. 

Q6. How long does bankruptcy last on your credit report?

Once you’ve filed for bankruptcy, it will appear on your credit record for five to 10 years, and you can only remove bankruptcy records from your credit report if the details are inaccurate. If this is the case, you are able to dispute entries that are wrong when you declared bankruptcy in order to improve your credit score. 

You can remove incorrect details such as: 

• If repaid debt agreements are still showing up on your credit report.
• If bankruptcy is still on your credit report 10 years after the original filing date. 
• If names, dates, addresses, and phone numbers have been entered incorrectly. 

Summing up

Declaring bankruptcy can be scary, especially if you’re unaware of the consequences of being bankrupt. While it can provide short-term debt relief, a bankruptcy declaration stays on your credit report for up to 10 years and can affect your ability to take out loans and apply for lines of credit. 

For more debt advice, check out our blog here for up-to-date guidance on money management. 

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.