Restrictions After Bankruptcy Filing

Restrictions After Bankruptcy Filing

Discover the restrictions after bankruptcy filing in Australia and steps for financial recovery in this insightful blog.

Bankruptcies are known to have long-lasting effects on your financial stability and lifestyle. In Australia, just as in many other countries, there are strict rules and regulations in place to govern the process and its aftermath.

In this blog post, we will explore the financial restrictions imposed on individuals who have recently declared bankruptcy and the measures they must take to resolve their situation and regain their financial security.

Declaring Bankruptcy

Declaring bankruptcy is a legal process in Australia that allows individuals who are unable to meet their financial obligations to seek relief from their debts, as per the Bankruptcy Act 1966 (Cth). It provides a fresh start for those overwhelmed by debt but comes with certain financial restrictions and responsibilities.

A new monthly AFSA report from December 2023 revealed that 805 new personal insolvencies were filed that month, a slight dip from the 853 in November. From the December figures, there were 509 bankruptcies, 289 debt agreements, and seven personal insolvency agreements. When broken down by states or territories, NSW recorded the most filings at 101, with Queensland (91) and Victoria (66) completing the top three. New bankruptcies in the ACT were the fewest nationwide at three, but AFSA classified 481 insolvencies under the Other category. 

Although the number of personal insolvencies overall filed in Australia have dropped since the start of the COVID19 pandemic – from over 20,000 in 2019-2020 to 9,930 in 2022-2023 – the AFSA’s latest State of the Personal Insolvency System report predicts a resurgence in 2024-2025 at 14,750 new filings. This is attributed to young renters facing cost-of-living pressures, such as taking out personal loans or using BNPL apps. When it comes to the amounts owed to creditors, the report tagged the ATO as the largest single creditor at over $2billion.

Financial Restrictions After Bankruptcy Declaration

Once you’ve declared bankruptcy, you will face several financial restrictions, including the following.

Asset Seizure and Sale

One of the primary purposes of bankruptcy is to use your assets to repay your creditors. This may involve selling some of your assets, such as non-essential property, investments, or luxury items, to generate funds for debt repayment. However, any tools you use for your trade worth no more than $4,200 total and vehicles worth under $9,100 total are declared “protected assets,” and therefore cannot be seized.  

Income Contributions

Depending on your income, you may be required to make income contributions to your bankruptcy estate for a specific period, usually up to three years and a day after filing. These contributions are used to repay your creditors. The AFSA states that while there are no limits to the income you can earn and save during your bankruptcy, you will be ordered to make payments under a set amount. For example, if your unsecured debts exceed $137,537.40, you will not be allowed to propose a debt agreement.

Credit Restrictions

Your bankruptcy will be recorded on your credit report for a minimum of five years (or up to seven years in some cases). During this time, it can be challenging to obtain credit or loans from traditional financial institutions. Current rules also state the bankrupt’s permanent inclusion in the National Personal Insolvency Index, but the Attorney-General’s Department released a discussion paper in September 2023 proposing among others that the permanent status be cut down to seven years.   

Travel Restrictions

If your bankruptcy trustee believes that you may try to escape your financial obligations by leaving the country, they can place travel restrictions on you, with cooperation from agencies such as the Australian Border Force and the Australian Federal Police, if needed.

Business Ownership

Bankruptcy may affect your ability to own or operate a business. If you want to continue running a business, you’ll need to seek permission from your bankruptcy trustee.

Measures to Resolve Bankruptcy

While bankruptcy comes with several financial restrictions, it’s not a life sentence. There are steps you can take to resolve your bankruptcy and work toward regaining your financial security. Here’s how:

Financial Counselling

Seeking professional financial counselling is an essential first step. A financial counsellor can help you assess your situation, create a budget, and develop a plan to address your debts.

Sacrifice Play

To resolve your bankruptcy, you may need to make a “sacrifice play.” This involves making substantial financial sacrifices to maximise the funds available for creditors. It may include selling non-essential assets and adopting a frugal lifestyle.

Austerity Measures

During your bankruptcy, you’ll need to adhere to strict austerity measures. This means living within your means, cutting unnecessary expenses, and prioritising debt repayment.

Income Contributions

If your income exceeds a certain threshold, you will be required to make income contributions. Ensure you make these contributions on time as specified by your trustee.

Full Disclosure

Cooperate fully with your bankruptcy trustee by providing all required financial information and documents. Failure to do so can lead to delays in resolving your bankruptcy.

Credit Repair

While your bankruptcy will remain on your credit report for several years, you can start rebuilding your credit by using secured credit cards, making on-time payments, and demonstrating responsible financial behaviour.

Regular Review

Your trustee will regularly review your financial situation to ensure that you are meeting your obligations and making progress towards resolving your bankruptcy. The review may also play into the expected discharge. Under the Bankruptcy Amendment (Discharge from Bankruptcy) Act 2023, the three-year-one-day rule is confirmed when the trustee approves a debtor’s petition or accepts a Statement of Affairs from an involuntary bankruptcy filing.

The Road to Financial Recovery

While the path to financial recovery after bankruptcy may be challenging, it is by no means impossible. Here are some guiding tips to assist you as you navigate this journey.

Set Realistic Goals

Understand that financial recovery takes time. Set realistic short-term and long-term goals to monitor your progress.

Stick to Your Budget

Creating and sticking to a budget is crucial. It will help you manage your finances, prioritise debt repayment, and avoid falling back into financial trouble.

Build an Emergency Fund

Having an emergency fund can provide a financial safety net in case unexpected expenses arise. Some money managers claim a rule of thumb for emergency funds is to set aside enough to cover up to six months’ living expenses.

Seek Professional Advice

Consider consulting with a financial advisor or counsellor to help you make informed decisions and plan for your future after being clear of the bankruptcy.

Rebuild Credit Wisely

As your bankruptcy period comes to an end, focus on rebuilding your credit. Use secured credit cards and other responsible credit-building strategies.

Monitor Your Progress

You must closely monitor your financial situation and adjust if there are strongly positive developments. Even small achievements can be worth a milestone to celebrate.


Declaring bankruptcy can be a difficult decision, but it’s important to remember that it’s a tool designed to provide relief and a fresh start for individuals overwhelmed by debt. While financial restrictions are imposed, there is a clear path to resolution and recovery. By seeking professional guidance in fixing your situation, you can work towards resolving your bankruptcy and regain your financial security.

DISCLAIMER:  This article is for informational purposes only and does not constitute official financial advice. Seek professional advice tailored to your specific circumstances before making any financial decisions.

2 Ezi has no relationships with any bankruptcy support service or financial advisor.

Please dial the National Debt Helpline for confidential discussions at 1800 007 007.

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