Last updated 30 November 2022

Unsecured creditors

Generally, creditors who do not have their debt secured on the assets of the debtor by a mortgage or similar arrangement cannot take further action to recover debts. Instead they may lodge claims with the trustee to be able to share in any funds in the bankruptcy.

Important exceptions where bankruptcy does not protect the bankrupt from payment of debts include:

  • fines for breaches of the law imposed by a court or tribunal
  • fraud debts
  • spousal or child maintenance payment
  • certain debts to the Department of Human Services
  • certain higher education debts and student supplement loans
  • the Australian Taxation Office.

The Australian Taxation Office may use tax refund credits to reduce tax debts during the bankruptcy.

Service providers

If the bankrupt has unpaid accounts for essential services, such as electricity, telephone or gas, the supplier might require a bond in order to keep the service connected.

Secured creditors, consumer credit contracts and leases

Creditors, who hold security such as mortgages or bills of sale over the bankrupt’s assets or with lease agreements, can recover the secured assets and sell them if payment is in default.

If the bankrupt wishes to retain those assets, the bankrupt must negotiate with the secured creditors and make regular payments.

However, if the assets’ value exceeds the amount payable to finalise the agreement, the bankruptcy trustee can sell the assets at any time before the bankruptcy comes to an end.

If there is a shortfall after sale of the assets, the creditor cannot pursue the debtor but can claim in the bankruptcy.


Bankruptcy of a person who owes money does not prevent a creditor from claiming from a guarantor (who is not a bankrupt) under a guarantee and recovering payment from the guarantor.

If a bankrupt has signed a loan agreement jointly with another person, the person who is not a bankrupt will still be liable for the full amount of any debts in joint names.