For those who hadn’t lived through a downturn or perhaps hadn’t paid attention before, the Global Financial Crisis (GFC) was an eye-opener.

Banks going into liquidation, companies closing down, individuals losing their homes and their livelihoods, countries going into unprecedented levels of debt.

As a country, Australia sidestepped the worst of the impacts.

But as individuals, we are not - and have never been - immune to going bankrupt.

From FY14 to FY23, over 130,000 Australians have declared bankruptcy. (Source: Australian Financial Security Authority.) The annual rate more than halved during COVID when triggers were temporarily changed, but they’re back on the way up in FY24.

Each of those bankruptcies affects a person, and their community.

Because of the shame and anxiety often associated with bankruptcy, it’s not something most people talk about socially. As a result, not many people know what it’s really like going bankrupt.

What happens?

What do the liquidators take?

How does it feel?

Time to remedy that.

Three of my friends were willing to share their bankruptcy stories. Their cases are vastly different:

• Michael* was a student with spiralling credit card debt;

• Karen* was a working single mum saddled with massive mortgages thanks to her ex-husband’s refinancing;

• Les* was looking towards retirement when an unpaid tax debt caught up with him.

Their stories have a common theme:

Life goes on.

Losing it all can be an unpleasant chapter in your life, but all three have gone on to be happy. Here are their stories.

*Note: names have been changed to protect identities.

Michael’s bankruptcy story

Michael was in my class at university. I vaguely recall that at some point while we were studying he went bankrupt. I didn’t think to ask why or what the impact was on him at the time. I was too busy partying and trying to pass my exams.

He seemed fine and it didn’t appear to affect his daily activities much – he still joined us for a drink at the pub and cheap dinners on Tight Tuesdays. We were all skint, so he didn’t stick out.

I called him to find out what had happened and what going bankrupt was like for him.

Michael was a mature-age student who had previously worked as a mechanical fitter. While working, he maxed out his credit card to its $12,000 limit.

He then took another credit card with a $4,000 limit to help make the minimum payments on the first credit card.

When that one filled up, Michael took out a third credit card – again with a $4,000 limit – and repeated the process.

While he was working, it was no problem to make the minimum payments and he could keep things ticking over. However, full-time work and studying for an engineering degree don’t mix. After giving up full-time work, Michael found he could no longer make the repayments. The interest was increasing, and he was starting to feel the pressure.

Not entirely sure what his options were, Michael sought legal advice from the free solicitors on offer at our university.

Michael credits his meeting with the university solicitor as the ‘kick in the bum’ he needed to take action.

The solicitor explained the advantages of going bankrupt in Michael’s case: being more than halfway through his degree, Michael was only a couple of years away from earning a good wage. If he dropped out, it would be difficult to come back and perhaps he never would.

Michael didn’t have much to lose in the financial and physical sense. He had a crappy car and some second-hand furniture to his name, none of which the liquidation teams would touch as it was below the minimum value threshold.

It was a stressful experience.

Michael had to dig through his records to provide the level of detail to satisfy his creditors. There were questions and paperwork. Michael had old fines outstanding, so the government became involved. He was unable to write off $5,000 in fines for property damage and driving offences, so he agreed to pay that off at a rate of $20 per week.

At the end of it though, Michael found relief. No more letters of demand, no more increasing interest. He was free!

More than a decade later, Michael is happily living with his fiancée and their children. They have investment properties and a solid income. They keep their credit card limit conservative and pay it off in full every month to avoid paying any interest. His bankruptcy no longer appears on his records.

In short, he’s a changed man.

Michael tells me he is very glad he elected to go bankrupt rather than drop out of university to earn the cash to pay off the debt. He believes he wouldn’t be where he is today without that event. He thinks he’d likely be alone, drinking and smoking his blue-collar wages away with no assets to his name.

He prefers the life he’s got now, thank you very much.

Michael’s advice to anyone considering bankruptcy is:

Avoid it if possible, especially if you have a lot of assets at stake. Going through the same experience now would be much more damaging and traumatic than it was in the uni days and waiting the seven years to have your record cleared is harder as you get older.

However, if you’re in a tight spot like he was, with spiralling debt, no foreseeable way out, and you don’t have much to lose, he reckons:

‘Go for it!’

Karen’s bankruptcy story

As Michael alluded to, going bankrupt when you’re more established is traumatic.

Karen found this out the hard way when she declared bankruptcy at 37 years old. Hers is an excellent cautionary tale to all people who share money, assets, and debt with their partners.

Karen and her husband, Dean, owned two properties: their own home and an investment.

Dean was a mortgage broker and managed their collective funds and investments. Whenever Dean called to ask for Karen’s driver’s license number, she knew a new purchase was being made. However, whenever Karen asked what was happening, Dean responded with demands to know why she didn’t trust him. Not wanting to rock the boat, Karen let Dean continue without further questioning, even allowing him to continue managing their joint finances on the properties after their break-up.

At that time, Dean was going through a very rough period. Karen agreed to give him some breathing room when he asked to delay buying her out of half of their properties.

Little did she know he was redrawing on their loans to the point where they had amassed nearly a million dollars of debt.

When she found out about the redrawing, Karen got legal control of the properties and loans and put a stop to any further borrowing but by then the ‘what’s yours is mine’ rule was definitely in play.

The debt was irreversible, and even though Dean was the perpetrator, she was responsible. Karen, a single mum on $55,000 a year, was left to deal with a million-dollar loan.

Servicing the interest on that big a loan was beyond her, and she could forget about actually touching any of the principal. She struggled along, on her own, for a very stressful year before she finally conceded defeat.

Karen’s experience in the Attorney General’s office on the day she went in to sign the bankruptcy papers was traumatic to say the least.

Apparently, she bucked the norm: she was told most people in her position were relieved that it was all over. Not so for Karen. She was ashamed and distressed at what was happening.

Despite her best attempts to prepare herself, she had little information about what to expect.

Karen was under the misapprehension that being bankrupt meant you didn’t have to pay your debts any more. She was wrong. The liquidators took everything: the properties, her shares, the car, her cash, and her entire next paycheck. She had to go back to request they give her some of the money back, so she could pay her rent and feed herself and her daughter.

When she went to get cash out of her savings account at the ATM, it ate her card.

The teller at the bank announced loudly that she had no right to a card and that now that she was bankrupt she would have to do all her banking in person in the branch. Needless to say, Karen does not bank with that institution any more (it’s one of the Big Four).

For the next three years her paycheck was subject to a garnishee order, to the tune of 50%.

She was unable to get car insurance on her new (second-hand) vehicle even though she’d been with the insurer and reliably paid her premiums for more than 20 years. Karen found herself being treated as a second-class citizen, and in some ways that was ongoing three years after the bankruptcy has concluded.

Bankruptcy has transformed Karen’s attitude to money. For a very long time after, she no debt and doubted she ever would again, until she bought a little unit to live in. She doesn’t have a credit card. Everything she owns is paid for in cash up front.

She says the feeling of not being financially beholden to anyone is liberating.

She is a prodigious saver and puts aside a significant portion of her paycheck every month, which apparently gives her quite a buzz. Karen is rightly proud of the fact that all her debtors, with the exception of the bank that held her mortgages, were paid off from her wages, which have steadily risen in tribute to her hard work.

She is also glad that she has come away from the experience with a greater empathy for people.

She finds it easier to understand how for some people, the slide toward and through bankruptcy is very slippery, that is can be a person’s undoing, and perhaps prevent their recovery.

Karen recommends getting professional advice if you are considering bankruptcy. She found information was scant but hopes this has improved since her experience.

She also recommends that if you make the decision, do it quickly.

The 12 months she struggled through prior to bankruptcy were stressful and, in the end, unnecessary. Karen also advises people in relationships to beware of catching an STD: Sexually Transmitted Debt (her phrase).

She is adamant that you should never sign anything relating to finances unless you’re 100% happy that you understand it and are comfortable with all it entails. Even if the person you love tells you to trust them and sign, make sure you read the fine print first!

Les’ bankruptcy story

The tale of Les’ financial woes is confirmation of the saying: ‘only two things are certain: death and taxes.’

Of the two, it’s taxes Les can vouch for.

Les ran his construction business for 30 years on and off with short periods of paid work as an employee sprinkled throughout when business was slow. He always acquitted his debts, if necessary by selling assets to do so.

In 2006 he was forced to wind up his business after a series of debtors not paying him.

He sold his house and investment property to cover the debts, walking away with his tools, furniture, and car. His declarable loss was in the order of $300,000. However, he hadn’t submitted a tax return in a couple of years so that went by the wayside. Around this time, Les started getting treatment for depression.

Having avoided going bankrupt at considerable personal cost, Les took work as a project manager to meet his living costs.

After a few years the work dried up, so he took time out to manage a major renovation for his then partner. By this time, the Australian Tax Office (ATO) was chasing Les for an $80,000 debt it believed they were owed. Les had managed his business via spreadsheet so he felt he was in a good position – the loss from the business should have well and truly offset that debt.

However, he still had not submitted a tax return since 2004.

In 2012, Les was forced into bankruptcy by the ATO.

By this stage, his tax debt had escalated to $150,000 due to interest charges and he also owed money to the bank. He’d become unemployed and had no hope of meeting the debt.

Around this time, Les suffered a mental breakdown.

He sold his car for $30,000, handed the money over to the ATO and entered voluntary insolvency. He still had not submitted a tax return. This turned out to be a real shame, as when the accounts were finally completed later that year, it turned out the ATO owed him $54,000 – as Les had suspected all along.

By this time, he was already bankrupt, and all the money went back to the ATO.

Les says going bankrupt was a relief. Not having that debt hanging over his head has been the best part of bankruptcy.

Another unexpected benefit related to his construction business: he can no longer be sued for any of his past work. All registered Master Builders are liable for their work for their lifetime, but bankruptcy clears this responsibility, which will make eventual retirement much less daunting.

Les’ advice was to seek professional help if considering bankruptcy, ideally from a specialist tax lawyer. He feels every case is different, so it warrants getting that advice – even if it comes at a cost.

Where to from here?

There is so much to take away from the stories of Michael, Karen, and Les.

I thank them for their willingness to be so candid about their experiences for our benefit.

There are a few personal actions you might consider to help avoid bankruptcy:

1. Avoid escalating debt. Pay off credit cards promptly and keep limits realistic. Don’t allow debt to grow beyond what you can service.

2. Take accountability for your money. Never sign anything unless you fully understand it.

3. Learn to recognise coercive control and financial abuse. The signs can be hidden and it can be insidious, so be wary about anything that reduces your control over your own money.

4. Submit your tax returns on time. If only for the peace of mind that you’re not amassing any debt.

Do you have a bankruptcy story to share?

We’d love to hear it, and we know from reader feedback that sharing your experience makes an impact on the lives of many.

Please share your comments, and here are some contributed by our readers on an earlier version of this blog:

Gordon: My story is that I went bankrupt but my wife who was not bankrupt and had no debts was ripped off by the trustee in bankruptcy who stole her non divisible assets and is now getting sued.

Di: My husband & I rented out our home and set off to work in the mining boom 11 years ago with a goal to set our retirement up to purchase 5 investment properties in 5 years. Aged in our early 50’s we joined an “property investment group” costing around $10,000 all up purchasing 2 units in a remote but booming mining town. We then purchased another unit in the Brisbane CBD so within 5 years we had 4 properties including our own home. The full time positions we both enjoyed ended around the mining downturn so we gained contracting work which looked to be at least 5-6 years ongoing employment. We had equipment in storage so just purchased a couple of large vehicles & a truck and with contract in hand we purchased a cute 3.5 acres in a small township but new prestigious estate where we were to build a small cottage to live in. Towards the end of the first phase of our contact, meterage price was slashed 30% and we were told we could renegotiate for the next phase but that would be 3 months away. To keep everything going we started other work with a different company to try and keep the crew we’d built together. This proved to be a nightmare and after completing all this companies “to hard for anyone else to do jobs” we ran out of cashflow. Chasing the money owing us proved fruitless as shortly after this company went into solvency and we were never paid. We sold all our equipment, went to live with my mum and found local, low paying jobs. We put everything we owned on the market and sold our home & CBD unit. The bank took the profit from that sale and put it on the 3.5 acres loan (same bank). We paid out all $ owing to another bank which left us with the 2 remote units (which remained tenanted at a lower rate but neutrally geared paying interest only), and kept up payments on the 3.5 acres at interest only. I lost my job (another huge story) and hubby kept working on a part time on call basis wherever he could (he’s now in NZ), but both his knees needed replacement so he worked in constant pain (still is). The NZ project is due for completion end of Mar 17 and the Real Estate contacted us regarding repairs to one units bathroom which is not covered by any of our insurances (quoted for $7,000-$8,000). The long term company (tenant) moved out so the extra mortgage is payable out of my husbands wage which is at limit already. We owe approx $5,000 on credit card; we’re trying to sell a ute and I’m trying to start a homebased business so I can also care for my mum in her home as she has early stage dementia. We have sold everything that we can, most of our furniture except for our bed, dressing table etc but realise with the unit bathroom repairs, the mortgages and outlook for new work due to hubbies knees and my just starting up a home business, our options are looking more like bankruptcy than anything else. The shame, fear & anxiety of the unknown (how we’ll survive financially), emotions and depression over wrong decisions and “how on earth did we allow ourselves to get here at this late stage in our lives” (now hitting 60)! We’re not sure what to do other than read, seek legal advise (which we have done before but felt we could get through it ourselves with hard work and determination); but health, age and circumstances beyond our control are hitting us right now. With mum in her 80’s she has left 3/4 of her house to me when she passes. We had hoped we could stay in the house and or purchase it should she need to go into a home so we could bring her for weekends. There are so many ‘if’s” to be considered it’s overwhelming. We are both Directors of our Company and our SMSF (Self Managed Super Fund), plus hold Power of Attorney to both our mums (fathers not living). Our taxation for 15/16 is currently with the agent and 16/17 docs are up to date ready for submission end of June. Does anyone have any insight for us especially what we can really expect ‘life” to look like afterwards plus what we should be doing right now to prepare for the inevitable. Thank you for your help. Our story above is a VERY abbreviated one but provides the basic situation personally and financially now owing $445,000 from 2.5 years ago owing approx $1.1m from selling off assets and paying down loans.

Elizabeta: Di that’s a distressing story. It looked like you were making all the right moves to ensure your financial future. Unfortunately I know someone who’s also looking down the barrel of bankruptcy, that’s how I ended up finding this article. One of the things I read about bankruptcy is that if you inherit money (or win the lottery) within the 3 years of the bankruptcy period, the trustee assigned to you can take that inheritance to pay your debts. If either of your parents die in that period of time, you could lose your inheritance. Something to think about before taking that step.

J: This is correct. I lost my father in April and mother in December same year, and my inheritance all went to AFSA, who have advised me they are not only taking the $66,000 I owed, but a $4000 administration fee as well as another fee which is 20% of the $66,000 I owed. How the hell they justify these fees is beyond me. The Public Trustee didn’t even bother advising me my mothers estate was finalised and $89,000 + had been paid to AFSA. I only found that out when I received paperwork AFSA want completed and called Public Trustee to find out when I could tell them I was expecting to receive that money. AFSA has had it for well over 6 months, all $89,000 of it and done nothing. Not only have I had to endure the circumstances leading up to my having to declare bankruptcy, I wasted $20,000 of my Superannuation trying to keep the banks at bay, finally succumbed mentally, emotionally, materialistically and financially to bankruptcy, lost both parents within eight months, shown nothing but callous disrespect from both Public Trustee and AFSA, I have now been told the $89,000 ‘probably won’t be enough to discharge me and that had I simply made an agreement with my creditors rather than declaring bankruptcy my inheritance would have been untouchable’. I am now in such a fragile state I can barely function. I have no advice to give. I am so broken from my experience I can see no recovery from here. I’m single, 50+ and face the rest of my life with no sense of security or hope. Bankruptcy is indeed a big step, and is not one I would recommend.

Henry: At nearly 49yrs old, I’m staring at the barrel of Bankruptcy. Separated from my wife, with debts that are more than what I earn, health issues that I will probably carry for the rest of my life. Tried to cut deals with banks, some where really good, some absolutely a-holes but I know, is my fault. I really want to stop going into bankruptcy but if I don’t, in the long run im not going to achieve anything. I can barely make minimum repayments, won’t be able to save money, look after my daughter, etc, etc and at 60yrs old who knows, still paying the same bills. So I came online looking for bankruptcy stories and came across this website, maybe to find the cojones I need to go through with it (Bankruptcy) Great site and I have liked the Facebook page

Carla: I’m facing bankruptcy at the moment and for only $20,000 debt. It seems like such a small amount compared to what others have lost but it is more than I can afford to repay.

I don’t own a home, an expensive car or any investments so I have been told ‘you have nothing to lose’… Still I’ve put off signing the papers as I understand the consequences.

One is, as a sole trader I must either let every client know I am a bankrupt or change the business name so that my full name is included in it. Well that’s just a bit awkward really. I quite like the name I originally came up with..

But that fact alone, having to tell clients makes me feel like I have committed a crime and therefore I have to warn them first.

I really want to avoid bankruptcy however it seems I have no choice, I am not on benefits so I can’t access superannuation. Withdrawing $10,000 of my super would have enabled me to pay off $13,500 of my debt, I negotiated a settlement (knocked nearly 50% off one $10000 bill) but nope. No can do.

That’s crazy isn’t it? I have enough super to pay this entire debt and avoid all of the adverse affects of bankruptcy? yet I can’t get my hands on that money.

It’s also worth mentioning that you must pay a $150 fee to apply for permission to leave the country after bankruptcyj. Now I don’t have the money to go travelling but i intend making some changes, first up I’m moving to a cheaper, smaller rental property. I hope to get a job soon so that I will be able to save enough to take my children somewhere as a treat for missing out over the last few years while I struggled as a single mother. At least that’s my long term goal, get a job, save and enjoy life.

I’m not happy about going bankrupt, I’m 46 and probably won’t ever be able to buy a home as I won’t be eligible for finance for quite a few years from now. The bright side is, I will be able to answer my phone without fear, I will be able to take my children out to dinner once in a while and some day soon, hopefully I’ll be able to take them overseas or at least interstate for a proper holiday.

It will be a relief to be debt free. Not sure how I’ll go with my business name though, but you can be certain I will change it. I’d much rather do that than tell every potential client that I’m a bankrupt. Not (just) because I am ashamed but because I think people will assume I am not trustworthy, that I’m guilty of fraud, or that I can not be relied upon. Maybe I’m just paranoid?

Rachel: I owned a business that was growing and went through a couple of hard troughs, and I had around $80,000 in stupid avoidable credit card debt to get us through those times ’till things got better’. They did start to get better, but unexpectedly took a turn for the worse, and the snowball of business overheads meant I got to the point where there was no other option than going bankrupt.

I had a friend who had declared bankrupt a few years earlier, and coincidentally now worked with an insolvency firm helping others through similar situations. He told me that while the process was emotionally difficult, it was very freeing, and the hardest part was forgiving yourself for what had happened. He was so right.

I didn’t have any assets worth seizing, but I had to give up my business which I was relying on to provide me with my retirement money. That was the biggest blow. But, it’s all about moving on now. All the money that comes in is mine as I earn below the income threshold for contributions, I have no debt, I can save as much as I am able and keep it, and in 5 years once it’s disappeared off my record I can buy a house and make some smart investments. I have learned so much in this process, I am kind of grateful for it – though I wish I had been smarter a few years ago, and managed to avoid it altogether. I certainly look a lot less stressed than I did a year ago when it was all happening!

Peter: I’m a Bankrupt, It hasn’t been too bad. My concern is that AFSA might go after the money I paid my MIL from the Sale of our house just before declaring Bankruptcy. She paid for improvements & wanted to be paid back when we sold the house. She’s deceased now & her Daughter & I are divorced. I wonder if AFSA will try & get that money from her childrens inheritance.

About Money School

If you’re new here, welcome! Delighted to have you 😁

This is the blog for Money School, an Australian financial education company.

The main site is at https://www.moneyschool.org.au, but I keep our articles over here on beehiiv.

Everything on the main site and this blog is for educational purposes only. I’m not a financial adviser, nor do I play one on Netflix. I aim to help you learn about money so you can ‘choose your own adventure’.

Money School was co-founded in 2010 by me (Lacey Filipich) and my mother, Fran White. Money School offers workshops, online courses and have an international award-winning book, published with Penguin Life in 2020.

I’m also a regular media commentator on all things personal finance. If you’ve got 16 minutes to spare, you might like to check out my TEDx talk (over 1m views!) on financial independence and mini-retirements.