Student Loans Bankruptcy? Here's How to Find Relief

For many Australians, the weight of student loans can feel like an insurmountable burden. If you're struggling with student debt, you might be wondering if declaring bankruptcy is a viable option to alleviate this financial pressure. Understanding the nuances of bankruptcy and its implications on student loans in Australia is crucial for making informed financial decisions. In this comprehensive guide, we'll delve into the intricacies of bankruptcy concerning student loans, explore possible alternatives, and offer actionable advice to help you manage your financial future.

Understanding Bankruptcy and Student Loans

In Australia, bankruptcy is a legal process that provides relief to individuals who cannot repay their debts. It can offer a fresh start by eliminating certain debts; however, it also has significant long-term consequences. When it comes to student loans, the situation is more complex. The majority of student loans in Australia are administered through the Higher Education Loan Program (HELP), and these loans are generally not discharged by bankruptcy.

Under the Bankruptcy Act 1966, most unsecured debts can be wiped clean through bankruptcy, but HELP debts are an exception. This means that even if you declare bankruptcy, your HELP debts will remain, and you'll still be responsible for repaying them once you earn above the repayment threshold.

Key Information on Bankruptcy and Student Loans

Understanding the specific criteria and implications of bankruptcy on student loans is essential. Here's what you need to know:

As of 2026, the compulsory repayment threshold for HELP debts is $48,361, meaning you'll need to start repaying your student loans once your income exceeds this amount, even during bankruptcy. The repayment rates range from 1% to 10% of your income, depending on how much you earn.

Steps to Consider Before Declaring Bankruptcy

Before deciding to declare bankruptcy, it's essential to explore all available options. Here are some practical steps you can take:

1. Assess Your Financial Situation: Take a comprehensive look at your debts, income, and expenses. Identify areas where you can cut costs or increase income to manage your debts more effectively.
2. Explore Debt Negotiation: Contact your creditors to discuss possible repayment plans or settlements. Sometimes, creditors are willing to renegotiate terms to ensure they receive some payment rather than none.
3. Consider Debt Consolidation: If you have multiple debts, consolidating them into a single loan with a lower interest rate may help simplify your repayments and reduce overall interest costs. Esteb and Co, with access to 83+ lenders, can assist you in finding a suitable consolidation option.
4. Seek Financial Counselling: Professional advice from a financial counsellor can provide you with personalised strategies for managing your debts and avoiding bankruptcy.
5. Evaluate Bankruptcy Alternatives: Alternatives such as a Debt Agreement or Personal Insolvency Agreement may offer relief without the severe consequences of bankruptcy.
6. Understand the Consequences: If bankruptcy seems inevitable, be fully aware of its impact on your credit rating, employment opportunities, and future financial activities.

Tips and Considerations

Here are some expert tips to consider when managing student loans and contemplating bankruptcy:

• Plan for the Future: Create a realistic budget that accounts for your loan repayments. Saving for unexpected expenses can prevent further financial distress.
• Stay Informed: Keep abreast of any changes in government policies regarding HELP debts and bankruptcy laws. This knowledge can influence your financial strategy.
• Utilise Professional Resources: With Esteb and Co's extensive panel of 83+ lenders, access tailored financial solutions that fit your unique circumstances.
• Consider Career Impact: Some professions may have restrictions on employment opportunities for individuals who have declared bankruptcy.
• Build a Support Network: Emotional and financial support from family and friends can be invaluable during challenging times.

Frequently Asked Questions

1. Can I include my HELP debt in a Debt Agreement?
   HELP debts cannot be included in a Debt Agreement and remain payable regardless of bankruptcy status.
2. How long will bankruptcy affect my credit file?
   Bankruptcy remains on your credit file for five years or longer, impacting your ability to obtain credit.
3. Are there any government relief programs for student loans?
   Currently, there are no government programs that forgive HELP debts, but income-driven repayment plans are available.
4. What happens to my assets if I declare bankruptcy?
   Some assets may be sold to repay creditors, but essential items like household goods and tools of trade are usually protected.
5. Can I apply for new loans after bankruptcy?
   It's challenging to obtain new credit during and after bankruptcy, but some lenders may offer products with high interest rates and strict terms.
6. Is financial counselling free?
   Many non-profit organisations offer free financial counselling services to help manage debts.
7. What is the role of a bankruptcy trustee?
   A trustee manages your bankruptcy process, including asset sales and creditor payments.