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Bad Credit 7 min read

How to Refinance After Bankruptcy or Defaults in Australia

A difficult credit history doesn't make refinancing impossible — but it does require the right lender and the right timing.

How to Refinance After Bankruptcy or Defaults in Australia — Mortgagefy guide

If you've been through bankruptcy, a Part IX debt agreement, or have defaults on your credit file, refinancing your home loan feels like an uphill battle. The major banks will almost certainly say no — but that's not the end of the story.

Specialist and non-conforming lenders exist specifically for borrowers with impaired credit. And in some cases, refinancing into a better loan product is possible even before your credit file is fully clear.

What's the Difference Between Bankruptcy and Defaults?

Bankruptcy is a formal legal process where your debts are discharged. It stays on your credit file for 5 years from the date of the order (or 2 years from when you're discharged, if longer).

Defaults are missed payment listings placed by creditors. They stay on your file for 5 years from the date of the default — regardless of whether they're paid.

Both affect your borrowing options, but they're assessed differently by lenders.

When Can You Refinance After Bankruptcy?

The timeline varies significantly by lender:

  • Major banks — Typically won't consider applications within 5–7 years of discharge
  • Specialist/non-conforming lenders — May consider applications as early as 1–2 years after discharge, depending on LVR and repayment history since
  • Key factors: time since discharge, repayment history since, LVR (lower is better), employment stability, and explanation of circumstances

When Can You Refinance With Defaults?

  • Paid defaults are generally viewed more favourably than unpaid ones
  • Defaults under $1,000 (especially telco or utility) are often treated more leniently
  • Some specialist lenders will consider applications with defaults as recent as 12 months
  • The size, type, and age of the default all matter
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What Rate Can You Expect?

Non-conforming lenders charge a rate premium to account for the higher perceived risk. Typical ranges:

  • Minor defaults (paid, older than 2 years): 1–2% above standard rates
  • Major defaults or multiple listings: 2–4% above standard rates
  • Recent bankruptcy discharge (1–2 years): 3–5% above standard rates

These rates are higher, but the goal is often to get into a better structured loan, clear remaining issues, and then refinance again to a standard lender once the credit file improves. Think of it as a stepping-stone refinance.

What Lenders Should You Approach?

Lenders like Pepper Money, Liberty Financial, La Trobe Financial, and Bluestone Mortgages specialise in non-conforming lending. They assess the whole picture, not just the credit score.

Going through a broker is strongly recommended here — approaching the wrong lenders directly creates additional credit enquiries that can further damage your score.

What Improves Your Chances?

  • Clear explanation of what caused the financial difficulty (redundancy, illness, divorce)
  • Demonstrated financial recovery since (consistent repayments, savings)
  • Low LVR (more equity = less risk for the lender)
  • Defaults paid (even if they can't be removed)
  • Stable employment or self-employment income

Bottom Line

Refinancing after bankruptcy or defaults is harder — and more expensive in the short term. But for many borrowers, it's the first step in rebuilding and restructuring. A broker who specialises in this area is your best resource.

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We work with borrowers who have impaired credit. We'll tell you honestly what's possible and what the path looks like.

The credit recovery timeline that actually matters

Australian credit reports show defaults for 5 years from the listing date and bankruptcies for 2 years from discharge (or 5 years from bankruptcy date, whichever is longer). Most borrowers think they have to wait the full statutory period before any lender will look at them. That's not how it works in practice.

Specialist non-conforming lenders will lend to discharged bankrupts immediately on discharge, with a higher rate and lower LVR. Mid-tier lenders typically want 12–24 months post-discharge with clean repayment history. Major banks generally won't look at you until the bankruptcy has dropped off your file entirely — typically 5 years from the date of bankruptcy.

The same scaling applies to defaults. A paid default 2 years old with clean repayments since is approvable by mid-tier lenders today. The same default unpaid is much harder. The same default 4 years old with clean repayments since is approvable by some major banks.

The refinance ladder: how to climb to mainstream rates

For most borrowers coming out of bankruptcy or serious credit issues, the refinance journey is a ladder, not a single move:

Year 0–2: Specialist non-conforming lender. Rate typically 8–10% in 2026 conditions. Lower LVR (often 70%). Higher fees. The point isn't to be there forever — it's to get you on the property ladder while your file recovers.

Year 2–3: First refinance to mid-tier non-bank lender. Rate drops to 6.5–7.5%. LVR can lift to 80% if your equity has grown.

Year 4–5: Refinance again to second-tier or major bank. Rate now within 0.3–0.7% of major bank standard rates. By this point your file may be cleaner than the original bankruptcy ever showed up on.

Each step typically saves you $7,000–$15,000/year on a $700K loan. The cost of refinancing — discharge fees, valuation, application fees — is typically $1,500–$2,500. A refinance that saves $10K/year pays for itself in 3 months. Our post-default refinance specialists map your specific recovery ladder so you don't stay on a specialist rate longer than necessary.

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