Unsecured debts

Most unsecured debts are covered in bankruptcy – this means you no longer have to pay them and at the end of your bankruptcy they are extinguished. But bankruptcy does not release you from all debts. In some cases, your Trustee may sell your assets or use your income payments to help repay your debts.

Unsecured debts are not tied to a particular piece of property, like a house or motor vehicle. Unsecured debts include credit and store cards, unsecured personal loans and pay day loans, overdrawn bank accounts, legal and accounting fees, electricity and phone bills, internet bills, and unpaid rent.

You may need to check with these creditors to confirm whether bankruptcy covers your debt:

  • Centrelink debt
  • ATO debts
  • Victim of crime debts
  • Toll fines

Unsecured debts NOT covered by bankruptcy

You will still have to pay some debts, even if you are bankrupt. Bankruptcy doesn’t cover:

  • Debts where you and your creditor haven’t resolved the amount owing (unliquidated debts). You may require legal assistance with this sort of debt.
  • Court imposed penalties and fines
  • HECS and HELP debts (student loans)
  • Debts you acquire after your bankruptcy begins

Secured debts

Secured debts are where the creditor you borrowed money from has a legal right to take possession of a specific piece of property (like a house or a car) if you don’t make the debt repayments, and sell it to cover the cost of the loan.

Only the shortfall between the debt owed and the value of the security is covered by the bankruptcy. So, if you intend to enter bankruptcy, you will need to contact your secured creditor and discuss your intentions regarding whether you will continue paying the debt.

If you cannot keep up the payments, you may be able to surrender the secured property to the creditor. If the surrendered property is sold it may not cover the full amount of what you owe. This shortfall should be listed in your bankruptcy and the creditor cannot chase you for any further payment.

Joint debts

A joint debt is a debt you share with another person. Typically, if one person becomes bankrupt the other person listed on the loan documents will become responsible for paying the full amount of the outstanding debt. If both people are bankrupt, they should each include the debt in on their own bankruptcy forms.

If the joint debt has a guarantor (e.g. your parent), normally the guarantor becomes responsible for paying the full amount of the outstanding debt.

Company debts

If you are a sole trader, you can list your business debts in your bankruptcy. If you are the director of a company, normally you don’t list the company debts in your bankruptcy. However, you may need assistance with this from a legal advisor or the Australian Securities & Investment Commission (ASIC). If you are a personal guarantor for company debts, you can include these in your bankruptcy.

Overseas debts

You must include any overseas debts in your bankruptcy. Debts you incur overseas are covered in your Australian bankruptcy. This means your creditors can’t pursue for that debt in Australia. However, your overseas creditors can pursue you for the debt if you travel back to that country. This applies during and after your bankruptcy.

Direct debits

You need to contact your bank directly to cancel any direct debits you have set up with that institution. It is your responsibility to cancel any direct debits.

Debt Comparison Table

Refer to AFSA’s Debt Comparison Table which explains the treatment of different debts in bankruptcy.