What is Bankruptcy?

Bankruptcy is a legal status offering protection from further action by creditors (people or companies who are suing or chasing you for unpaid moneys) for debts that are ‘provable in bankruptcy'.

A person may become bankrupt on his or her own application (voluntary bankruptcy) or on the application of a creditor (involuntary bankruptcy). In the case of voluntary bankruptcy, the bankruptcy comes into effect once the Official Receiver accepts a debtor's petition. There is no Court hearing. In the case of involuntary bankruptcy, the debtor's bankruptcy takes effect when the Court, being the Federal Court of Australia or the Federal Magistrates Court makes a sequestration order against the estate of the debtor.

How long does bankruptcy last for?

The usual period of bankruptcy is 3 years.

How much is the minimum amount of money must be owed before a creditor can make a person bankrupt?

A creditor cannot make a person bankrupt unless the debt is $2,000 or more.

What happens to debts after bankruptcy?

After bankruptcy, the bankrupt is discharged from all provable debts.

What are the effects of bankruptcy?

During the period of bankruptcy, a bankrupt will:

  • have difficulty in obtaining most types of loans;

  • not be able to be a director of a corporation;

  • may require written approval to travel overseas; and

  • only be able to earn a prescribed limit of income.


With creditors pressing for payment, bankruptcy may seem attractive, however, it should be avoided if at all possible. Bankruptcy has serious financial consequences and should only be considered after obtaining legal advice. Once bankrupt, there is no turning back.

At Lex Fori Lawyers we can advise you on the law of bankruptcy and make an application for you. Please do not hesitate to contact us on (02) 9723 8793 to make an appointment.