Fact versus fiction: Myths about bankruptcy in Australia

Only deadbeats, cheats and criminals file for bankruptcy, right?

Wrong. Bankruptcy is a legal process, and with that comes complexity. It also brings with it a large number of misunderstandings that, built on a little bit of truth and a whole lot of misinformation, have given the process a pretty bad wrap.

Don’t let myths and misunderstandings scare you away from what can be an effective method to solve serious debt problems.

The top 10 myths that prevent people from getting debt relief in bankruptcy

The falsities The facts
“I have a job, so I can’t file for bankruptcy” Anyone can file for bankruptcy. In fact, most people are employed; they just don’t have enough resources to pay back their debts.

Our clients are from a diverse range of backgrounds, ranging from Chief Executives, General Managers and Specialist Managers to arts, media, business, human resources, legal, accounting, finance, design, engineering ICT, education, marketing and health professionals. We’ve also helped bankers, welfare support workers, carers, aides, protective service workers, police and defence officers, clerical and administrative support workers, sales representatives and agents, store-persons and assistants, as well as labourers, machine operators, drivers, students, stay-at-home parents and people on the Pension.

Exhausted yet?

“I can only earn a certain amount of money before everything else is ‘taken’ in bankruptcy” Not at all. If you earn over a certain amount (we call it the Base Income Threshold or Actual Income Threshold), then you might have to pay half of your income over this amount. Half – not all.

The Income threshold that’s applicable to you will come down to your assessable income and how many dependants you support. We’ve developed this nifty video to show how your payments would be calculated.

So if you’re considering bankruptcy and earn more than the set limit, call us on 1300 369 168  or make an online enquiry. We’ll provide advice based on your specific circumstances.

‘My wages will be garnished through my employer” Absolutely not! While this can occur, it’s really a last resort when it comes to collecting your income contribution payments. This will only happen if you don’t make the payments yourself. The reality is that you’ll be making your payments independently and as long as you do so, there isn’t any need to garnishee your wage.
“I’m not in enough debt to file for bankruptcy” If you have a debt over $5,000 that’s beyond your ability to pay, bankruptcy may be a smart choice both financially and personally – at the end of the day, it really comes down to what your circumstances are, including what you owe comparative to your income and your assets.
“I will lose absolutely everything I own, including my car” The law protects a number of your assets, including clothes, household goods and furniture, tools of trade (to a certain value), superannuation policies and compensation payouts.

This also includes your car, provided it falls within the dollar value specified by the Bankruptcy Act.

So if you’re considering bankruptcy and own a car more than the set limit, call us on 1300 369 168 or make an online enquiry and we’ll happily advise.


“I’ll lose my house” While property is not protected in bankruptcy, you still have options. Every situation is different, but our animated video provides a thorough overview.

If you’re considering bankruptcy and own a property, call us on 1300 369 168 or make an online enquiry. We’ll provide obligation-free advice based on your specific circumstances.

“Everyone will know and I’ll be publicly humiliated” While it’s true that a record will be maintained on the NPII, your bankruptcy will appear on your credit file for just 5 years. A trustee can advertise a bankruptcy if they feel it’s necessary, but we find that this generally occurs in very rare cases.

In terms of your friends and family finding out, anyone can pay a fee to search the NPII but we find that most people have never even heard of this record before researching bankruptcy. Had you? Most of the time, it’s going to be up to your discretion as to who you choose to share this information with.

“Bankruptcy means I have failed; financially, personally and morally” If you look at the case studies of our clients, you’ll see that they are men and women, just like you, who have been buried by debts that they can’t repay. Some of this is as a result of financial over-commitment, but in other cases it has been triggered by job loss, illness and other medical challenges, divorce or other circumstances that are largely out of their control.

Bankruptcy is far from a personal failure – it’s a strength to ask for help in moving forward with your life, and it’s certainly not a moral decision – bankruptcy is a valid, legal option that has been established as a legitimate safety guard for individuals who have hit troubled times. It’s not a ‘get out of jail free’ card.

“I won’t be able to travel overseas unless it’s for work purposes” This is one of the biggest bankruptcy myths! Whether it’s for personal or professional travel, your Trustee can grant you permission.

Requesting permission from your trustee is easy enough to do and generally requires you to complete a form and submit details of your proposed itinerary for the trustee to review. Learn what the trustee takes into account.

Our travel video busts this travel myth and more.

“Bankruptcy will ruin my financial future and I’ll never be able to borrow again” If anything, bankruptcy may improve your long-term credit rating. It might sound crazy, but think about it this way;

Being bankrupt may improve your cash flow position. This means that your risk of defaulting on mortgage payments or rent can be greatly reduced in comparison to your position when bankrupt. You might even be able to save some of your money, which will impact your long-term ability to borrow again.

And the cold hard fact is this; Yes, there will be a temporary record on your credit rating, but it will only be there for 5 years. And you – well, you have your entire future ahead of you!

We’ve made a video about your credit report, the NPII and borrowing after bankruptcy. Check it out.

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