Senator Day told his staff on Monday that he would stand down from the Senate to devote himself to paying back his debts, including by selling off his own family home.

Over recent weeks Fairfax Media has reported on a series of problems with Senator Day's company Huxley Homes, the NSW subsidiary of his Home Australia company.

Huxley currently has 56 homes under construction while the Victorian arm of the company, Ashford Homes has 57 in mid-build.

Senator Day announced on Monday that Home Australia would be liquidated by insolvency company McGrathNicol. He has been largely absent from Parliament since the federal election as he focussed on problems in his building company.

Fairfax Media understands the value of Home Australia's collapse will run into the tens of millions of dollars, with liquidators urging those affected to seek out builders' insurance.

"The Liquidators' immediate objective is to work constructively with relevant insurers and customers in an effort to facilitate the orderly recommencement of construction of uncompleted homes by alternative builders," liquidators Matthew Caddy and Barry Kogan said.

In a letter to staff Senator Day said he was "devastated by what has happened and will do whatever I can now to assist those affected by this closure".

"I am incredibly sorry for the pain, stress and suffering I know this will cause," he said.

"As I have always agreed to sign personal guarantees to creditors, this closure also has serious implications for me and my family.

"Creditor liabilities greatly exceed our assets so we will also lose our family home.

"As for my role as a Senator, I will of course resign."

Politicians are not allowed to remain in Parliament if they have been declared bankrupt.

Senator Day, who ran for the Liberal Party at the 2007 election, has been a strong supporter of the government in the Senate and was a passionate advocate of workplace deregulation.

He was elected as a Senator for South Australia at the 2013 election and re-elected in July after he crept over the line to win the state's final Senate spot.

Former prime minister Tony Abbott said Senator Day had taken the "honourable course" by resigning and praised him as a "principled and courageous" senator.

"I've known Bob Day for many years and have always liked and respected him," Mr Abbott said in a statement posted on Facebook.

"He built up a very successful business.

"Obviously it's disappointing that with Bob necessarily busy in the Senate and unable to give it much attention, the business is now in trouble."

Senator Day's private company, B&B Day Pty Ltd, has made significant donations to Family First over many years including $758,000 in 2010-11 and $381, 775 in 2012-13.

In his letter, Senator Day said he had built his first home in 1979 before his company in South Australia, Homestead became that state's larget builder by 1990.

"But I made 2 big mistakes - 1. Buying Huxley Homes and 2. Going into politics without putting in place a proper management structure for the business. I will be working closely with the liquidator and offering a proposal to enable me to find a way to pay back every debt fully, no matter how long it takes," he said.

He had been hopeful of being bailed out by a Philippines-based company Goshen Capital Resources but the money never materialised.

"The funds from Goshen would have provided the Home Australia Group with enough liquidity to trade out of its current difficulties given the more than $100m in forward orders Home Australia has in its pipeline," he said.

Family First will be able to nominate a replacement for Senator Day for the party's South Australian Senate spot.

Senator Day's chief of staff Rikki Lambert told News Corp he planned to nominate for the casual vacancy left by Senator Day's resignation.

Mr Lambert, a lawyer who has been a staffer for Family First for a decade, ran as a senate candidate the the July federal election but quit the race before election day.

Another possible replacement could be Senator Day's running mate in South Australia, Lucy Gichuhi, who would become Australia's first Kenyan-born senator if selected.

Ms Gichuhi migrated to Australia in 1999 with her husband and three children and has worked for international services firm Ernst and Young and the South Australian Auditor-General's department.

A law graduate, Ms Gichuhi has helped new migrants and international students transition to Australia and has experience volunteering with local community legal services in Adelaide.