ATO Debt and Bankruptcy: What Gets Released?
A common misconception is that ATO debt is not written off in bankruptcy. That is not correct in all cases.
Under section 153 of the Bankruptcy Act, discharge from bankruptcy releases a bankrupt from most provable debts.
That can include ATO debt, including some DPN liabilities for GST, PAYG and superannuation, as well as credit cards, personal loans, trade debts, personal guarantees, unpaid rent and shortfalls on secured debts.
However, some liabilities are not released, including debts incurred by fraud, child support and maintenance liabilities, court fines and penalties, and some obligations owed to a trustee in bankruptcy, such as income contributions. HECS/HELP debt is also not released in bankruptcy under separate legislation.
People often delay dealing with debt because they assume bankruptcy will not help them. In reality, bankruptcy can sometimes provide a clean outcome and a line in the sand.
The key is understanding which debts will be released, what assets may be at risk and whether there are better alternatives.
