Can Bankruptcy Clear All Debts? Here’s What’s Included & What’s Not
Bankruptcy in Australia is a legal process that can provide relief for individuals overwhelmed by debt. It offers a way to reset financially by eliminating most unsecured debts. However, it’s important to understand that not all debts are wiped clean when a person declares bankruptcy. While seeking the guidance of experienced insolvency lawyers is recommended when navigating this complex process, this article will provide some clarity by taking a look at common debts that are and aren’t cleared in bankruptcy.
What Debts Are Cleared in Bankruptcy?
When you declare bankruptcy in Australia, many common types of unsecured debts are discharged. These include:
- Credit card debts
- Personal loans
- Store cards and payday loans
- Overdue utility bills and medical bills
- Unpaid rent or lease shortfalls
- Tax debts (with some exceptions)
These debts are generally eliminated at the end of the bankruptcy period, which typically lasts for three years and one day from the date your bankruptcy is accepted. Once discharged, you are no longer legally required to repay these debts and creditors must stop pursuing you.
What Debts Are NOT Cleared in Bankruptcy?
Bankruptcy doesn’t offer a clean slate for every type of debt, as certain obligations remain even after the bankruptcy period ends. These may include:
- HECS/HELP debts and other student loans – These are considered government debts and are excluded from discharge.
- Child support and spousal maintenance – These must continue to be paid as ordered by a court or agreement.
- Court fines and penalties – These can include traffic fines and criminal penalties.
- Debts incurred by fraud – If a debt was obtained through dishonest conduct, it won’t be cleared by bankruptcy.
- Secured debts (like car loans or mortgages) – While the personal liability may be wiped, the lender can still repossess the asset if payments aren’t made.
Understanding which debts are included and excluded is important, especially if you're relying on bankruptcy as a long-term financial solution. Insolvency lawyers can provide tailored advice to ensure you understand your obligations and make informed decisions.
Additional Considerations
Bankruptcy has serious implications. It can affect your credit rating for five years or more, limit your ability to travel overseas and require you to make compulsory payments if your income exceeds a certain threshold. It may also impact your employment in certain industries. Furthermore, your trustee has the right to sell your assets (including property or shares) to repay your creditors. Some household goods, tools of trade and a vehicle up to a certain value may be protected.
Getting the Right Help
Because the rules around bankruptcy are complex, consulting with insolvency lawyers is highly recommended. Sometimes, bankruptcy may not be the best or only option. A lawyer will be able to help you evaluate alternatives like debt agreements, personal insolvency agreements or financial counselling so you can find the right solution for your situation.
