Bankruptcy
The Attorney-General has responsibility for bankruptcy policy, the Bankruptcy Act 1966 and the Australian Financial Security Authority.
The Bankruptcy Act and associated legislation, such as the Bankruptcy Regulations 2021 and the Insolvency Practice Rules (Bankruptcy) 2016, regulate Australia's personal insolvency system and provide a framework to allow individuals in severe financial stress to discharge unmanageable debts while providing for the realisation of a debtor's available assets for distribution to affected creditors.
The Bankruptcy Act provides insolvent individuals with formal options to resolve their personal insolvency through bankruptcy, debt agreements and personal insolvency agreements:
- bankruptcy is a legal process where you declare bankruptcy, or a court declares you bankrupt, because you are unable to pay your debts
- debt agreements provide insolvent individuals who have low to moderate levels of debt, assets and income with an alternative to bankruptcy, while providing a return to creditors, and
- personal insolvency agreements are a legally binding agreement between a debtor and their creditors and can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.
Entering bankruptcy, a debt agreement or a personal insolvency agreement is a serious decision and can have significant implications. Individuals considering them should seek the advice of a financial counsellor. The National Debt Helpline provides a free financial counselling service to help individuals manage their debt and can be contacted on 1800 007 007.
Additional information about the support and services available to help make financial decisions is available on the moneysmart website. This includes information about financial assistance and counselling.
Australian Financial Security Authority
The Australian Financial Security Authority (AFSA) is responsible for the administration and regulation of Australia's bankruptcy system through the delivery of information, regulation and enforcement services.
The AFSA website has information about:
- bankruptcy, debt agreements and PIAs
- what to do about unmanageable personal debts
- what to do if you are owed money by a person
- how to be a trustee or administrator
- complaints processes
- personal insolvency in the context of Coronavirus.
Recent changes to the bankruptcy system
The remaking of the Bankruptcy Regulations
On 1 April 2021, the Bankruptcy Regulations 2021 commenced to address the sunsetting of the Bankruptcy Regulations 1996.
The Bankruptcy Regulations 2021 remade the Bankruptcy Regulations 1996 in substantially the same form with minor and technical amendments aimed at modernising references and ensuring alignment with the Bankruptcy Act.
The Bankruptcy Regulations give form to many administrative requirements of the Bankruptcy Act necessary for the efficient administration of bankruptcies, debt agreements and other formal personal insolvency options governed by the Bankruptcy Act.
More information about key changes implemented by the Bankruptcy Regulations 2021 is available on the AFSA website.
A new bankruptcy threshold of $10,000
On 1 January 2021, the personal bankruptcy threshold permanently changed to $10,000.
The $10,000 threshold accounts for the changing value of money and debt levels since the threshold was last permanently increased to $5,000 in 2010. The increase of the threshold to $10,000 also addresses concerns about the use of bankruptcy proceedings to pursue small debts without reducing the general availability of credit in the economy.
The bankruptcy threshold of $10,000 applies to bankruptcy notices issued, or creditors' petitions presented on, or after, 1 January 2021.
The $10,000 threshold replaced a temporary threshold of $20,000, which the Australian Government implemented as part of its response to the COVID-19 pandemic in March 2020, as set out in the section below.
Coronavirus and changes to bankruptcy laws (COVID-19)
On 24 March 2020, the Australian Government made temporary changes to bankruptcy laws as part of its economic response to the Coronavirus (COVID-19) pandemic. These temporary bankruptcy changes ceased at the end of 31 December 2020.
The temporary changes increased the:
- level of debt required before a creditor can make someone bankrupt from $5,000 to $20,000
- timeframe for a debtor to respond to a bankruptcy notice from 21 days to 6 months
- temporary debt protection period from 21 days to 6 months.
More information about the Australian Government's economic response to the Coronavirus (COVID-19) pandemic is available on the Treasury website.
Consultations on the bankruptcy system
The department has recently conducted the following public consultations on the bankruptcy system:
The bankruptcy system and the impacts of coronavirus – concluded
- The bankruptcy system and the impacts of coronavirus consultation sought submissions on possible changes to the bankruptcy system to inform the Australian Government's ongoing response to address the impacts of coronavirus (COVID-19). The public consultation closed on 12 February 2021.
Bankruptcy Regulations 2021 – Exposure Draft consultation – concluded
- The Exposure Draft of the Bankruptcy Regulations 2021 was released for consultation between 3 December 2020 and 10 January 2021. The department considered stakeholder submissions as part of the process of remaking the existing regulations. The Bankruptcy Regulations 2021 were made on 18 March 2021 and commenced on 1 April 2021.