Borrowing for a business after a bankruptcy has ended

A discharge ends the bankruptcy and removes any restriction on applying for credit, but it does not clear the record. A credit report carries the bankruptcy for five years from the day it began or two years from the day it ended, whichever is later, and the public insolvency register keeps it for good. For a secured lender the first question is a different one again: whether the property is still yours to borrow against.

What a discharge does, and what it leaves behind

Bankruptcy normally lasts for three years and one day. Where the application was voluntary, AFSA counts that from the day the Official Receiver accepted it; where a creditor obtained the order, from the day an accepted statement of affairs was filed. Discharge is automatic at the end of it — nothing has to be applied for — unless the trustee lodged a notice of objection, which extends the period beyond the usual three years and a day.

What the discharge does is release you from most of the debts. Most unsecured debts go: credit cards, unsecured personal loans, utility accounts, overdrawn accounts, unpaid rent, professional fees. Some do not. AFSA's list of what bankruptcy does not cover is short and worth reading twice — court imposed penalties and fines, child support and maintenance, HECS and HELP debts, debts incurred after the bankruptcy began, and unliquidated debts where the amount has not yet been settled. Centrelink debts, ATO debts, victims of crime debts and toll fines are the ones AFSA says to confirm with the creditor rather than assume.

And then the sentence most people in this position have never read. AFSA's own words: after your bankruptcy has ended, there is no restriction on applying for credit or loans, including home loans. It can take time to rebuild a credit rating, and it is up to the credit provider to decide. There is no waiting period written into the law. The only thing standing between you and a loan is a lender's assessment.

You are not the first one this week

Most people who get to the other side of a bankruptcy and want to start trading again ask their bank first. The bank says no, and it almost never says no because it has decided the loan would not be repaid. It says no because there is a policy line about insolvency history, or because there are no financials to assess, or because a credit file is read by a system before it is read by a person. Those are reasonable things for a bank to care about. None of them says anything about whether there is equity in a property.

That gap is where HomeSec has been since 2004. We are not here to judge how it went — it is one of the more ordinary histories on the files we see, which is why we also write about business loans for borrowers with bad credit. What we look at is whether there is enough unused equity in real property and whether the purpose is a genuine business one: not financials, not a credit score, not whether everything is up to date. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months, so there is nothing payable in the months when a business starting again can least afford it.

Back to the record itself, because what it says and for how long is more precise than most people assume.

Two clocks are running, and only one of them stops

This is the part that catches people, and it catches them years later. A bankruptcy is recorded in two quite different places, on two quite different timetables, and knowing which is which decides what you say and when you say it.

1. 1
   The credit report, which forgets.The OAIC's retention table gives a bankruptcy the later of five years starting on the day you became bankrupt, or two years starting on the day you stopped being bankrupt. AFSA states it the same way. Since a bankruptcy normally runs three years and a day, the five-year limb is usually the one that governs — so the entry comes off roughly two years after discharge, not on the day of it. Around it sit the other retention periods: a credit enquiry five years, a court judgment five years, repayment history two years, and a default five years, which a business loan with defaults on the credit file deals with on its own terms.
2. 2
   The National Personal Insolvency Index, which does not.The NPII is a public register of personal insolvency proceedings, provided for in Part 13 of the Bankruptcy Regulations 2021, with records going back to 1928. AFSA says many of its records remain on it permanently. Its practice guidance lists only four circumstances in which an entry is removed — a bankruptcy set aside by the Court, a debt agreement record that has met its prescribed period, an administrative oversight such as a duplicate, or a Court direction. Discharge is not one of them, and neither is the passage of time. What changes is the status recorded against your name, which is updated to show the bankruptcy has ended.

Two consequences follow, and they point the same way. The first is that being clean on a credit report is not the same as being invisible: any person can, for a fee, search the index through AFSA's Bankruptcy Register Search, which runs on a cost recovery basis, and credit providers are named in AFSA's own guidance as among those who receive index information. The second is practical. Where a record is permanent and searchable, there is nothing to be gained by leaving it to be discovered, and something real to be lost. Say it on the first call. A lender that was going to care already knows how to look, and a lender that was not going to care is not going to start.

An annulment does not change this either. AFSA's guidance is explicit that where a bankruptcy is annulled for any reason the NPII record is not removed; the record is updated to show the annulment and the date of it. Worth knowing before paying for an annulment in the belief that it erases something.

The question a secured lender asks first: whose property is it

Here is the thing that stops more of these applications than the credit file does, and almost nobody sees it coming. When a person becomes bankrupt, the trustee becomes the owner of their share of any real property. On a jointly owned house that means the bankrupt no longer has legal capacity to deal with it, and the co-owner cannot deal with it without the trustee's consent. To record that, the trustee goes to the state or territory land titles office and either lodges a caveat against the property or transfers the land title into the trustee's own name.

A discharge does not undo any of that. AFSA puts it in one sentence: the trustee retains a legal interest in the house even after the bankruptcy ends. Trustees recalculate the equity in a property from time to time, and where it has grown — a mortgage paid down over years, or a rise in value — the trustee may still realise the asset for creditors, after discharge. There is a limit on how long they have. AFSA's figure is generally six years from discharge, with the caveat that variations apply depending on the circumstances, which is a question for the trustee rather than for a lender.

So the first thing worth doing is not an application. It is a title search on every property you expect to borrow against, because the answer is on the title and it costs very little to read. If a caveat or a transfer is sitting there, no lender can take security over the property until it is dealt with, and no amount of equity changes that. Normally a caveat is removed on the request of the party that lodged it, or by order of a court — which makes the former trustee the first call, not the last. Our guide to what a caveat on a title actually means covers the instrument itself.

Two smaller points from the same source. A trustee may still ask a discharged bankrupt for information about their financial position, for outstanding compulsory payments, for cooperation with valuations, and for current contact details — so going quiet is not a strategy. And where the property is held with someone who was never bankrupt, that co-owner has their own position and their own interests, and independent advice for them is money well spent.

If you were a company director

The bar on managing a company is tied to being currently bankrupt, which is the good news and the reason to get the detail right. ASIC lists a person who is currently bankrupt, or covered by a personal insolvency agreement, among those who cannot be a company officeholder. AFSA's own table says the same thing from the other end: an undischarged bankrupt, or a person subject to a personal insolvency agreement, cannot be involved in the management of a company unless authorised by the Court. Under the Corporations Act the disqualification is automatic on bankruptcy, and continuing to manage a company while disqualified is an offence.

What that means in practice is that the paperwork moved while you were bankrupt and has to move back. A current officeholder who is declared bankrupt is automatically disqualified; the company must remove them and notify ASIC within 28 days, and the person should notify ASIC as well, by lodging Form 296. Once the bankruptcy has ended the disqualification no longer applies, but nothing reappoints you on its own. Check what ASIC's register says about the company and about you before an application goes anywhere, because a lender will look and a mismatch costs a week.

Employment is a separate question with a cleaner answer. The Bankruptcy Act 1966 imposes no restrictions on employment in any trade or profession. What does exist sits with licensing authorities and professional bodies — builders, electricians, plumbers, real estate and motor dealer licences, accountants, solicitors, tax agents and others — and AFSA publishes the list of who to ask. The answer is often that nothing changes; the point is that the body to ask is the licensing authority, not a lender.

What a secured business loan turns on instead

Briefly, because the eligibility page covers the mechanics and no credit check, honestly covers what is and is not pulled.

The assessment is the equity and the purpose. The range is $20,000 to $5,000,000, interest can be capitalised for up to six months so there is nothing payable while a business finds its feet, and the term is open, so the exit can be a refinance at bank pricing or a sale when it is ready rather than on a date somebody imposed. There are no financial statements to produce and no credit score threshold, because neither answers the question the equity answers. If you are starting from nothing rather than restarting, the guide to starting a business when the credit file is already against you covers what a lender can read when there is no trading history at all.

What does not change is that the loan is secured on real property. That is not a technicality and we do not present it as one: it is the reason the answer can be yes when a credit file says otherwise, and it is why the title has to be clear before anything else is discussed.

When borrowing is not the answer

Said plainly, because starting again is the easiest thing in the world to talk yourself into borrowing for.

Where there is no equity in real property, a secured loan is not our answer and we will say so on the first call rather than the third. The useful calls then are to a financial counsellor — the National Debt Helpline on 1800 007 007 is free, independent and confidential — and to your accountant.

Three narrower cases where the answer is also no. Where the trustee's interest in the property has not been resolved, there is nothing to lend against yet, and the work to do is with the former trustee rather than with us. Where the amount needed is below $20,000 we do not lend to it at all, because registering a security over a property for a figure that size is the wrong tool for the job. And where a debt from the old business has survived the bankruptcy — a fine, child support, a HELP balance, something incurred after the bankruptcy began — borrowing against a home to clear a debt that was never going to be released deserves an accountant's view first, not a lender's.

If the business that is trading now is the one in difficulty rather than the one in the past, that is a different page: small business restructuring sets out the formal road, and a registered liquidator is the person who can take it.

This page explains what a discharge from bankruptcy does and does not change, how long the record is kept in each of the two places it is kept, and what a trustee's continuing interest in property means for somebody trying to borrow against it. It is general information, not legal, credit, tax or insolvency advice: what is right in your circumstances is a question for your accountant, a lawyer or a registered liquidator, and questions about your own bankruptcy are for your trustee. AFSA publishes the bankruptcy and NPII guidance behind the sections above, the OAIC publishes the credit reporting retention periods, and ASIC publishes who may and may not be a company officeholder.

Reviewed by Paul Stone, Joint Chief Executive