Bankruptcy in Australia – does it matter if it is voluntary?

When it comes to Bankruptcy in Australia, commonly people aren’t aware that there can be both voluntary, and involuntary bankruptcy – both have distinct methods and policies.

Involuntary bankruptcy occurs when someone you owe money to applies to the court to declare you bankrupt. Commonly when you get one of these notices, you have 21 days to pay all the debt. If you do not, then the creditor returns to the court and asks the court to provide a sequestration order that declares you bankrupt. A trustee is selected, and then you have 14 days to get the documentation in and after that you are bankrupt.

You can challenge a bankruptcy notice by going to court immediately after the 21 days have expired and put your case forward, to stop it going to the next level. Apart from the way you became bankrupt there is in fact no distinction between Involuntary Bankruptcy and or Voluntary Bankruptcy – once you are simply declared bankrupt, they’re managed to in the same way.

However, when it comes to Bankruptcy for this, the stress and anxiety, torment and fear that accompanies this process is incredible. If you think you are more than likely to be made bankrupt by someone, get some assistance and act on that advice. Generally I’ve found it’s always much better to know what you can and can’t do before you have somebody bankrupt you. Once you are bankrupt, it’s typically too late.

Voluntary Bankruptcy

However, when it comes to Bankruptcy, sometimes there are times that it is the best option. So you may need to ask yourself, ‘when should I consider voluntary Bankruptcy?’.

This question is not the very same for everybody of course, but generally I find that one way you could work it out is to figure out how long it will take you to pay each of your debts – if its longer than 3 years (the period you are declared bankrupt), then this may serve to help you make that decision, and help you to understand Bankruptcy.

Once, I had an 80 year old pensioner, who spoke to me once regarding * Bankrupcty tell me that her credit card statement calculated how long her debt would take to pay at the level she was paying her account, and it was 35 years! Imagine 35 years for one credit card bill.

Credit rating damage can help you think this through. If you move house and forget to pay your $30 phone bill for 6 months more, it’s very likely the phone company will default your credit file. That default will sit on your file for 5 years, so for $30 you can have your credit file truly damaged for that period of time– and all of this will impact how you have to approach Bankruptcy.

In many ways, the ease with which companies/credit providers can default your credit file is unreasonable. The punishment doesn’t seem to match the crime in my book. So if you already have defaults on your credit report for 5 years, bear in mind that bankruptcy is on your credit file for a total 7 years then its erased completely.

So if your credit rating is a big issue in trying to decide whether to participate in a Debt Agreement or Personal Insolvency Agreement or Bankruptcy remember they will all sit on your credit file for a total of 7 years. The biggest difference is that with a DA or PIA you pay back the money and nevertheless have it on your file for 7 years.


I have mentioned the word a few times now, but when it comes down to it, Bankruptcy is the biggest part, and the element more people are afraid of when they come to me to talk about their financial situation and Bankruptcy. The other side of crime and punishment equation is bankruptcy, and in this specific country the arrangements are very generous: you can go bankrupt owing millions of dollars and after 3 years it’s all finished with no strings attached. As compared to countries like the United States, our bankruptcy laws are very reasonable.

I don’t claim to know why that is but a few hundred years ago debtors went to prison. These days I suppose the government thinks the sooner it can get you back on your feet working and paying tax, the better. It makes more sense than locking you up which costs the taxpayer anyway.

Bankruptcy wipes all of your debts including ATO debts except for a few things:

  •  Centrelink Debts, Court Fines like parking and speeding fines.
  •  HECS or Fee Help loans.
  •  Money to pay for a car accident if the car was not actually insured.

There is far more that can be said about this and Bankruptcy in general but the purpose of this blog was to help you decide between a few possible options. When getting some advice, don’t forget that there are always possibilities when it relates to Bankruptcy in Australia, so do some homework, and Good luck!

If you wish to learn more about precisely what to do, where to turn and what questions to ask about Bankruptcy, then feel free to speak to Bankruptcy Advice Australia on 1300 879 867, we have offices in, Brisbane, Canberra, Sunshine Coast, Sydney, Melbourne, Gold Coast, Adelaide, Perth, Darwin and Hobart. or visit our website: