The 10 Biggest Myths About Bankruptcy

The 10 Biggest Myths About Bankruptcy

Back when my own business was collapsing, I kept it from everyone. Friends, family — I assumed they'd see me differently. I'd been to a lawyer who made me feel stupid and an accountant who told me, plainly, that I'd been losing money for years. Some mornings I struggled to get out of bed, then put on a brave face and went to work as if nothing was wrong. The calls I wasn't answering and the default notices stacking up told the real story.

Then one night at a wine bar, on my third glass with a mate named David, I cracked and told him what was happening. In a quiet voice, he told me he'd been bankrupt himself. Nothing about my situation changed that night. But everything shifted — because I suddenly knew I wasn't alone, and I realised I'd been holding myself in the worst possible place by trying to be.

That's what myths do. They keep you stuck and silent. Here are the ten I hear most, and the real story behind each.

Myth 1: I have to face the trustees alone

Not at all. The cleanest path is to work with an advisor who knows the system, has working relationships with trustees and liquidators, and can prepare the documents for you. A good advisor isn't there to judge — they're there to take the pressure off and walk you through every step. By the time you actually meet the trustee, you'll know what to expect and what to say.

Myth 2: I won't be able to run my own business

You can't be a director of a company while you're bankrupt — that part is true. But you can keep running your own business under your own ABN as a sole trader. Plenty of bankrupts trade right through the bankruptcy period. The structure changes; the work doesn't have to stop.

Myth 3: I can't get finance while bankrupt

For the duration of your bankruptcy — typically three years — mainstream lenders won't extend credit. That's true. But a growing number of specialist lenders now operate in this space and provide finance to people who can't access traditional bank lending. It isn't on the same terms as a normal loan, but the market exists.

Myth 4: There's no way out once it starts

There is. It's called annulment, and it works through a creditors' agreement. A creditors' meeting is convened with your trustee, and a percentage of the dollar value of your debts is offered to creditors. If the proposal is accepted, your bankruptcy is annulled — formally treated as if it never happened. The agreed payment plan can typically run for up to two years. The earlier this option is raised with a good advisor, the more credible the proposal usually is.

Myth 5: I can only earn a small amount

There's no cap on what you can earn during bankruptcy. There is a contribution threshold — if your income goes over it, you pay half of the excess to your bankruptcy estate. The threshold is set by AFSA, indexed twice a year, and adjusted upward if you have dependants. Your advisor or trustee gives you the current figure when you sit down with them, and you can confirm it at afsa.gov.au. Being self-employed or contracting can give you legitimate flexibility around how the contribution is worked out.

Myth 6: I'll have to pay creditors after bankruptcy

You won't. Your bankruptcy runs for three years. On discharge, the debts caught by the bankruptcy are extinguished — you don't owe those creditors anything further. Bankruptcy stays on your credit file for a defined period after discharge, but the underlying debts themselves are gone.

Myth 7: Even if it's annulled, I'll never get finance again

Annulment is different from discharge. If your bankruptcy is annulled through a successful creditors' agreement (see Myth 4), it's treated as if it never happened. It doesn't appear on your credit file the way a completed bankruptcy does. If a credit application asks "have you ever been bankrupt?", the answer can legitimately be no. Finance becomes available again straight away, on whatever terms a lender is willing to offer.

Myth 8: I'll lose my car

Most likely not. Vehicles generally have low resale value on the wholesale market, so it's rarely worth a trustee's effort to sell a car to recover for creditors. There's also a statutory exemption for tools of trade and a vehicle up to a set value. If you're in a finance arrangement and can keep up the repayments, you can usually keep the car.

Myth 9: Everyone will know

Unless you tell them — and most people end up telling someone — the answer is no. Your bankruptcy is recorded on the National Personal Insolvency Index, which is publicly searchable. But practically, no one searches it unless they have a specific reason to: a lender, an employer for certain roles, a contracting authority. Unless you're in the public eye or someone is specifically checking, your friends, family and most people in your life don't know — unless you choose to share it.

Myth 10: My family home will be repossessed

The thought is frightening. The reality is more nuanced. A trustee is looking at one question: is there enough equity in the property to pay creditors after the costs of selling and the trustee's own fee? If there's no real equity above the mortgage, the home is often left alone. There are also legitimate strategies to protect a home before bankruptcy starts — but they need to be put in place early, with proper advice. They aren't something you can do in the last fortnight. This is one of the conversations worth having well before any decision is made.

What the other side actually looks like

The day my bankruptcy number came through, a weight lifted that I hadn't realised I'd been carrying — the constant low-grade panic, the blocked numbers, the voice in my head saying I'd failed. What surprised me most was that the version of me who'd believed something was worth building eight years earlier was still there underneath. It had just been buried.

Bankruptcy isn't the end of anything. Read these myths, run them past someone you trust, and see how many of the things you've assumed are actually true.

Talk it through — before the next letter arrives

If any of this is sitting on your desk right now, the next move is a confidential strategy session. Phone or video, whichever suits you — we'll look at your whole position, tell you straight where you stand, and map the options while you still have them.

Book at resolvency.com.au or call 0457 099 099.

I'm not a liquidator or trustee — I work for you, not the creditors. In 36 years I've never once heard someone say they acted too early.

General information only — not financial, legal or tax advice. Everyone's position is different, so get advice specific to yours before you act.

Related service: Bankruptcy — see how we can help.