Does bankruptcy clear GST or BAS debt?

BAS debt in your own name

When you run a business as a sole trader, every line on the BAS is a debt you owe personally: GST, PAYG withheld from staff wages, PAYG instalments and any fuel tax credit clawback. Bankruptcy treats all of it as ordinary unsecured debt. It goes on the trustee's list with everything else, collection stops, and whatever is unpaid at discharge is released.

This surprises people because the ATO's own hardship release scheme will not release GST or PAYG withholding, only income tax and related amounts (see can GST debt be released for hardship). Bankruptcy has no such carve out. It is one of the few ways a large personal BAS debt ends without being paid in full.

The same applies to a partner in a partnership: each partner is personally liable for the partnership's BAS debt, and each partner's bankruptcy deals with their share of that liability.

BAS debt that belongs to a company

A company is a separate legal person. Its GST and PAYG withholding are its debts, and a director's personal bankruptcy leaves them exactly where they were. If the company cannot pay, the options are the company's: a payment plan, small business restructuring, or liquidation, which ends the company's debt but not always the director's exposure.

Where the two worlds meet is the director penalty notice. Once a DPN for unpaid PAYG withholding, GST or super has crystallised against you, that penalty is your personal debt. It is provable in your bankruptcy and is released like any other unsecured debt. The ATO can still issue a lockdown DPN after the company has gone, but a penalty that arose before your bankruptcy date is caught by the bankruptcy.

What keeps going during bankruptcy

• You can keep trading under your ABN as a sole trader, but you must disclose the bankruptcy when you get credit above an indexed amount, and you cannot be a company director.
• You still have to lodge each BAS. GST and PAYG for periods after the bankruptcy date are new debts, and they are yours to pay.
• Any GST refund or credit for a pre-bankruptcy period is an asset of the trustee, and the ATO can offset it against your pre-bankruptcy debt first.
• Unlodged BAS for periods before bankruptcy still need lodging so the ATO can prove the right amount. Lodging does not make the debt survive; it just fixes the figure.

What to do next

1. Separate your BAS debt into what is in your own name and what is in a company's name before you assess anything.
2. If you are a director, check whether any director penalty has already crystallised against you, because that changes the personal figure.
3. Get your outstanding BAS lodged so the real numbers are known, whichever path you end up taking.

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