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Becoming bankrupt
Voluntary bankruptcy
You apply to be made bankrupt by filling out forms that are available from the Insolvency Trustee Service of Australia (ITSA). These forms require details about your income, expenses, assets, debts and personal situation.
It is very important that you answer all questions truthfully. Making false statements on your bankruptcy forms is an offence. If you are unsure about anything in your application get help.
Your bankruptcy form (or ‘petition’) will not be accepted by the ITSA unless you say that you have read an ITSA booklet called the Prescribed Information booklet. The booklet is available on ITSA’s website (link below).
Once the forms have been accepted by the ITSA’s official receiver you are then formally bankrupt. You will be given a bankruptcy number and your debts (amounts that you owe to somebody else) and assets (things that can be sold to pay the debts) will be under the control of your trustee. The trustee may ask you for further information.
The official receiver can refuse your application for bankruptcy if it looks like you could pay your debts. This is to stop people who are unwilling to pay their debts (rather than unable to) from applying for bankruptcy.
Creditor’s petition
If you owe more than $5000, the people you owe money to can apply for you to be declared bankrupt. The amounts must be 'liquidated'. This usually means that a court has made an order that you pay the debt.
The creditor must apply to the official receiver asking that a bankruptcy notice be issued. This notice details the amount you owe, and the legal costs and interest. You then have 21 days to pay before the creditor can ask that you be made bankrupt.
If you do not believe you owe the money, or you disagree with any part of the claim, or you want to avoid bankruptcy, act quickly. Get advice from an independent source.
Do not rely on what the creditor or the creditor's lawyer says. If you own or are paying off property, get independent advice.
If you do not do anything within 21 days, the creditor is likely to apply to the Federal Court for your bankruptcy. Once the court has made an order you are bankrupt. This order is not easy to change.
Assets & property
There are limits on the property you are allowed to keep when you are bankrupt. Usually everything you own at the time you become bankrupt becomes the property of the trustee, unless it is a ‘protected asset’.
Protected assets include:
- household property – items that are ‘reasonably necessary’ for day-to-day living including basic furniture, kitchen equipment, linen, bedding and towels, one TV, video/DVD recorder and radio, and educational, sporting or recreational items mainly for children
- a vehicle valued at up to $6850*
- essential tools of the trade valued at up to $3400*
- superannuation, life assurance policies and retirements savings
- personal injuries claims
- various Commonwealth grants of loan and rural assistance.
Property or money held in trust for someone else also can’t be taken by the trustee, but you need proof that it’s not yours.
Any assets that you can prove are owned by somebody else – for example, your non-bankrupt partner, children or other relatives – will not be taken unless you transferred the asset to them.
* These amounts are indexed to inflation and change from time to time.
More information
Related publications
Debt problems: the law, your options
Related websites
ITSA – information about bankruptcy and other options
How we can help
Call Legal Help for free information over the phone about the law and how we can help you with your legal problem. You can speak to a legal information officer in English or ask for an interpreter. Phone (03) 9269 0120 or 1800 677 402 (country callers), Monday to Friday from 8.45 am to 5.15 pm.
Our other free legal services include:
- advice at our offices and other locations across Victoria
- lawyers who are on ‘duty’ to help at many courts and tribunals.
For some matters we can provide you with a lawyer to help you run your case.
To find out more about any of our legal services see What we do.
Who else can help?
See Getting help with financial problems for details of free financial counselling services in your area and other organisations that can help you.