Before bankruptcy: the options worth looking at first

When debts pile up, bankruptcy can start to look like the only way out. Sometimes it is the right answer. But it has lasting consequences, and there are usually options worth looking at first.

What bankruptcy involves

• It generally lasts three years and one day, and can be extended in some circumstances
• It stays on your credit report for five years from the date you became bankrupt, or two years after it ends, whichever is later
• Your name stays on the National Personal Insolvency Index, a public register, permanently
• While you're bankrupt, you can't manage a company without the court's permission, and some of your property can be sold to repay creditors

The Australian Financial Security Authority (AFSA) administers bankruptcy, and its website sets out the current rules in full.

Option one: talk to your lenders

If repayments have become hard to manage, you can ask your lender for a hardship arrangement, such as lower repayments for a period or a longer term. Under the National Credit Code, lenders have to consider a hardship request and generally respond within 21 days. It's free to ask, and it's best done early.

Option two: an informal arrangement

Creditors will often agree to a payment arrangement, and sometimes accept a reduced amount, if they can see a realistic plan. A financial counsellor can help you put one together, for free.

Option three: consolidate or refinance

If you own property or have a reliable income, replacing several high-interest debts with one lower-rate loan can make the repayments manageable. It only works if the new repayment genuinely fits your budget, and it can cost more over a longer term. When consolidating helps, and when it doesn't.

Option four: a formal agreement

A debt agreement under Part IX of the Bankruptcy Act is a binding agreement with your creditors to pay an amount you can afford over a set period. It isn't bankruptcy, but it is recorded on your credit report and the public register, and there are limits on your debts, assets and income that AFSA updates twice a year. For larger debts, a personal insolvency agreement under Part X is another formal option, run by a trustee.

Where we come in

Where refinancing or consolidation can genuinely fix the problem, we'll arrange it. Where it can't, we'll say so plainly and point you to the right help. We don't administer bankruptcies, debt agreements or personal insolvency agreements. More on debt advice.

General information only. This article does not take into account your objectives, financial situation or needs, and it is not personal financial, legal or taxation advice. Lending criteria, fees and conditions apply, and all applications are subject to lender assessment and approval.