Bankruptcy is essentially dealing when the individual is insolvent. Meaning, that an individual is unable to pay his/her debts as and when they fall due.
There are two main ways bankruptcy comes about:
Voluntary Bankruptcy (Debtor Petition)
Any debtor who has a business or residential connection with Australia may present a debtor’s against themselves. There is no minimum debt for this to occur.
Creditor’s Petition (Involuntary Bankruptcy)
In order for a creditor to petition for an order they must be able to establish:
- Debtor owed a debt of $5,000 or more, and
- Debtor committed an act of bankruptcy within six months before the filing or presentation of the petition, and
- At the time of the act of bankruptcy there was a connection to Australia.
If the court accepts the creditors petition a sequestration order is ordered.
There are alot of similarities between insolvency that deals with companies and individual bankruptcy that are often confused. the table below shows the comparison between the two.

Are there any other options besides bankruptcy?
Yes, the are several options such as entering into a debt agreement, personal insolvency agreement, temporary debt protection for six months and an agreement with each of your creditors. The best option for your circumstances will need careful evaluation.
Debt Agreement
A debt agreement is just that it is an agreement that you enter into with the creditors to satisfy their debts without having to be made bankrupt. Often you negotiate to pay a proportion of the debt.
There are often fees for the proposal and management of the agreement but these will vary between administrators. The agreement can go for three years, however if circumstances permit they can be extended to five years.
Personal Insolvency Agreement
This is the second agreement options available. A PIA is also referred to as a Part X(10) and is a legally binding agreement between you and your creditors. The agreement can be in a lump sum or installments and there is reduced regulations around the time limits involved and amount of money required to enter into an agreement of this nature.
Should I talk to my accountant or my solicitor?
You should speak with your financial advisor and/or accountant first and foremost to get an idea of your true financial position.
After that point you should be speaking with your legal advisor for legal advice in regards to your options.
What are some of the consequences of Bankruptcy?
- a director who has filed for personal bankruptcy is therefor disqualified from continuing as a director or managing a company.
- You appear on the National Personal Insolvency Index (NPII)
- ability to obtain future credit
- Affects your ability to travel overseas
- unlike popular belief it does not release you from all debts the most common ones being HECS & HELP debt, child support and maintenance and court imposed fines.
- you lose control over all assets and finances the administrator will sell any assets to cover the debt.
Some common terms when dealing with bankruptcy.
Australian Financial Security Authority (AFSA) – The government body that manages the application of bankruptcy and personal property securities laws and the regulation of personal insolvency practitioners and trustees.
Australian securities and Investments Commission (ASIC) – The government body that manages and maintains the administrative and enforcement of regulations over companies.
Bankruptcy Notice – A notice issued by the Official Receiver after a final judgment or order to pay the final amount is given on behalf of a creditor.
Consumer Price Index – Official measure of inflation for Australia, which, changes quarterly.
Debt Agreement Administrator – a registered person and/or company who administers a Pt IX debt agreement.
Official Trustee in Bankruptcy – the person who is vested with the bankrupt person’s property (administrative only)
Registered Trustee – representative of the creditors typically this person is an accountant and they administer in the creditors’ interest.
What are some of the consequences of Bankruptcy?
Bankruptcy must be considered carefully as like any options dealing with debt there are consequences, some more serious than others. Some of the consequences are:-
- disclosure of bankruptcy is required if trading under a different name whether alone or jointly
- dissolution of a partnership (business)
- unable to manage or be director of another corporation
- may affect professional bodies and/or trade associations for membership i.e. Law Society
- Unable to retain assets unless it is exempt property
- assets can be recovered if sold or transferred for less than market value
- does not released all types of debt i.e. secured debtors
- consent to travel oversees is required
What are some of the consequences of a debt agreement?
A debt agreement must be considered carefully as like any options dealing with debt there are consequences, some more serious than others. Some of the consequences are:-
- Does not release you from all debt
- secured creditors may seize and sell any assets used for credit or collateral in the debt
- your name will appear on the National Personal Insolvency Index for a period of time
- can affect your ability to obtain future credit
What are some of the consequences of a Personal Insolvency Agreement?
A PIA must be considered carefully as like any options dealing with debt there are consequences, some more serious than others. Some of the consequences are:-
- unable to be a director or manage a corporation until the terms of the agreement are fully complied with
- ability to retain assets is dependent on the agreement
- rights of secured creditors are not affected
- not all debt is released
- can’t have proposed another PIA in the last six months.
What is the national Personal Insolvency Index (NPII)?
The National Personal Insolvency Index (NPII) is a publicly available records of persons that have been subject to proceedings under the Bankruptcy Act 1966.