Ask Paul: Can I declare bankruptcy on a $30k Centrelink debt?

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Q. I have a Centrelink debt of $30,000.

If I decide to declare bankruptcy will my debt be cleared? - Helen

A. Hmmmm. This is not my area of expertise.

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So I went to the Welfare Rights Centre, which says: "If you have a Centrelink debt, and then become bankrupt, you do not have to repay the debt during the period of bankruptcy (usually three years). Centrelink cannot take deductions from your payments, require payments by instalments, garnishee your bank accounts or take court action to recover the debt during that period.

"After bankruptcy, Centrelink can only start to recover a debt in limited circumstances. Whether or not a debt can be recovered after bankruptcy is a complicated issue. If Centrelink tries to recover your debt after you are discharged from bankruptcy you should seek legal advice from your local Welfare Rights Centre/advocate." (See welfarerights.org.au.)

My advice is to discuss this with Welfare Rights before you make any decisions.

Bankruptcy is not an easy way out; it really is a final resort.

It will limit your capacity to get credit in the future and is not something that anyone wants to do unless it is really necessary.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.