Call us: 0800 347 257

Secured debts can’t be included in a bankruptcy

In 2018, Soraya was in a lot of debt and decided to declare herself bankrupt. In relation to one of her debts, she told the lender she wanted that debt included in her bankruptcy. The lender said she couldn’t, because the debt was secured by the household goods she’d bought with the loan. Soraya kept paying the loan, although she struggled to make payments.

In 2021, just before she was released from bankruptcy, the lender and Soraya were discussing how to restructure her loan, to make it easier for her to manage payments. In 2024, Soraya complained and said that the debt should have been included in her bankruptcy, and that she shouldn’t have had to make payments since 2018.

The lender reviewed the complaint and could see they’d made a mistake when restructuring the loan in 2021: they should have done an insolvency check at this point, but hadn’t. It appeared the restructure likely meant that Soraya would pay more interest and fees over the remaining loan term, however, because of her insolvency history, this may not have been appropriate.

To resolve the complaint through their internal complaints process (ICP), the lender offered to write off all fees and interest incurred since the 2021 restructure, meaning that Soraya only had to pay back the loan balance as it was at that date ($3,300). Since 2021 Soraya had paid $4,900, so the lender said they’d refund her $1,600 to resolve her complaint.

Soraya did not accept this and referred her complaint to FSCL.


We identified this dispute as one which might resolve early, without the lender having to send us a full report and file on the complaint. We asked the lender to send us documents confirming that this was a secured debt, which they did within one working day.

We then contacted Soraya and explained that, at law, the debt could never have been included in her bankruptcy while it had been a secured debt. To include the debt in her bankruptcy, she would have had to surrender the secured items, with the lender selling them. Only then could the remaining debt have been included in her bankruptcy.

We told Soraya the lender’s offer for her to only pay back the loan balance as it was in 2021, appeared reasonable.

We noted that Soraya had struggled to pay the loan between 2018 and 2021, and we talked to her about whether she wanted us to look at what had happened with the loan in that period. However, Soraya wanted to put the matter behind her. She said that if the lender could pay her $1,600, consider the loan paid in full, and update her credit record to say that the loan was paid in full, her complaint would be resolved. The lender agreed to do this, and we closed our file within a few days.

Insights for participants

This was a good example of a case having gone through our Early Assistance Plus (EA+ process). Both Soraya and the lender were keen to put this complaint behind them, and the parties just needed a little extra help from FSCL to get them to a resolution. A key reason why an early resolution could be achieved was the lender’s willingness to quickly send us the documents we asked for.