Financial Rights Legal Centre
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Help! I’m being made bankrupt!

This fact sheet is for information only. It is recommended that you get legal advice about your situation.


Eduardo was out of work for almost 6 months and fell behind on his strata management fees for the apartment he was paying off. He had also been in dispute with the strata management company over complaints about his vehicle which leaked oil in the driveway. Every time he talks to someone, the amount he owes seems to have grown. He received a whole lot of paperwork which he threw in the bin out of anger and frustration. Now his bank account has been frozen and he has received a letter from someone claiming to be his trustee in bankruptcy.

You can be forced into bankruptcy if you have committed an Act of Bankruptcy. Common Acts of Bankruptcy include failing to respond to a Bankruptcy Notice (see below), presenting a debt agreement proposal, or having the Sheriff try unsuccessfully to repossess your personal goods to pay a judgment debt.

Bankruptcy is a serious matter, meaning all your property apart from some protected items, will be sold for the benefit of your creditors. If you own your home (including an apartment/home unit) or you are paying it off, it can usually be taken and sold by the trustee in bankruptcy. Any other property or valuables you own may also be taken. You may also have to pay contributions from your income (depending on what you earn), and face other restrictions and consequences. See our Fact Sheet: Should I consider Bankruptcy for more information or go to

If you receive paperwork, such as a Statement of Claim, Bankruptcy Notice, or Creditor’s Petition you need to get advice urgently! The process is very difficult and expensive to undo if you leave it too late.


The most common way of making someone bankrupt is as follows:

  1. Serve a Statement of Claim on the debtor
  2. Apply to the court for a default judgment after 28 days (the creditor can do this if the debtor has not filed a defence)
  3. Apply for and serve a Bankruptcy Notice on the debtor (which must usually be paid within 21 days)
  4. File and serve a Creditor’s Petition on the debtor.

The Court can then make a Sequestration Order (which means the person is bankrupt) if the creditor can show:

  • It is owed $5000 or more – or $20,000 if you fall under the COVID-19 reprieve which runs for 6 months from 25 March 2020 onwards).
  • There has been an act of bankruptcy in the last 6 months (in this case failure to pay in accordance with a Bankruptcy Notice)

You can be made bankrupt without ever turning up to Court.

There are other acts of bankruptcy that a Creditor’s Petition can be based on, some of which do not even require a judgment debt,  such as proposing or terminating a Debt Agreement (see our Fact Sheet: Debt Agreements), or filing for Temporary Debt Protection (formerly called a  Declaration of Intention to File a Debtor’s Petition). In that case, a Creditor’s Petition will be the first document the debtor receives about the bankruptcy proceedings.


Get urgent legal advice. See our Fact Sheet: Debt Recovery in the Local Court.

If you do not owe the debt, or all of it, you will need to lodge a defence. If the claim relates to consumer credit, you may be able to lodge a dispute with a free independent dispute resolution service (see below).

If you do owe the debt and it is not a consumer credit debt, you should try to negotiate a repayment arrangement directly with the creditor. Even if they don’t agree, you can simply start paying if you have account details but keep records of all payments made.


If you receive a statement of claim for a consumer credit debt, such as a credit card, personal loan, home loan or goods rental agreements (consumer lease), DO NOT lodge an application to pay by instalments unless there is already a judgment against you. You can lodge a dispute for free with the Australian Financial Complaints Authority instead, which will stop the legal proceedings (at least temporarily). You can do this if you dispute the debt or if you simply cannot afford to pay the amount claimed in one lump sum and you need help to negotiate a repayment arrangement. See our Fact Sheet: Dispute Resolution (Financial).


In NSW you will not be told by the Court when judgment is entered. If you have not lodged a defence, you can contact the NSW courts registry on 1300 679 272 to find out if there is a judgment listed. If you are not defending the debt (or lodging a claim in the Australian Financial Complaints Authority), and you cannot negotiate a repayment arrangement with the creditor, you can apply to the Court to pay by instalments. See our Fact Sheet: Applying to Pay by Instalments.

You should immediately begin making payments in accordance with your application, even before you find out whether the court has accepted it.  An instalment order will stop the creditor from being able to make you bankrupt, but only if you are paying exactly in accordance with the order. Being even one day late or one dollar short can leave you vulnerable to bankruptcy proceedings!


You have only 4 options:

  • Do nothing (and risk being made bankrupt)
  • Pay in accordance with the notice (usually within 21 days, or 6 months if you fall within the COVID-19 temporary reprieve that runs for 6 months from 25 March 2020)
  • Negotiate with the creditor about repayments (and start paying if you haven’t already)
  • Get legal advice about opposing the Bankruptcy Notice. In most cases you will not have any grounds to challenge the Bankruptcy Notice and trying to do so will only add legal costs to your debt.

Failure to pay a Bankruptcy Notice is an Act of Bankruptcy which is easily proved by the creditor, and the most common way people are made bankrupt.

You can still apply to the Court to pay the debt by instalments but this won’t necessarily stop the bankruptcy proceedings. An instalment order will only prevent a creditor proceeding to make you bankrupt if you get it BEFORE a Bankruptcy Notice has been issued.

If you receive a Bankruptcy Notice and you never received a Statement of Claim, you should get urgent legal advice. You may have grounds to apply to set aside the judgment or you may have a set-off, in which case you will also need to lodge a Notice stating grounds of opposition to application, interim application or petition (Form 5) in the Federal Circuit Court in relation to the Bankruptcy Notice. You will need to show both that you did not receive the court papers AND that you have a defence and/or set-off.

You would then need to appear in the Federal Circuit Court AND the court where the judgment was obtained. You should seek legal advice, as you can incur substantial costs.

GETTING THE DEBT BELOW $5,000 (or $20,000 due to COVID-19)

If at any time you can get the debt below $5,000 (or $20,000 if you fall within the COVID-19 temporary reprieve that runs for 6 months from 25 March 2020) you can stop the creditor making you bankrupt. This can be difficult because the creditor may not accept any payments but it is worth trying if you can find the money.

Unfortunately, even if you succeed there is a risk that another one of your creditors may be substituted in to make up the amount required. The same creditor can also add in other amounts owing that were not included in the judgment, but were outstanding prior to the act of bankruptcy (the non-payment of the Bankruptcy Notice). For example, if there were further unpaid strata fees after the statement of claim was issued, but before the Bankruptcy Notice, in the case study above, these may be added to make up the $5,000 (or $20,000 due to the 6 month COVID-19 reprieve).


It is not uncommon for people to be upset about a judgment debt because in their view they should not owe the money claimed. If you feel this way you should get legal advice, but if you have no legal defence, then you need to pay or face the consequences, which may include bankruptcy.

It is very hard to accept something that is not fair and move on, but if you can possibly pay a judgment debt, you need to do so unless you are not concerned about being made bankrupt (some people own nothing, have very little income and don’t care about the other consequences of bankruptcy).

If you are made bankrupt when you could have paid the debt, it will cost you many thousands of dollars more than the amount of the debt to annul the bankruptcy. This is because you will have to pay all the costs of the creditor’s legal representatives, and the trustee, in addition to your debt(s).

If you own your home or other significant assets, you need to get legal advice immediately.  In most cases, assets including your home can be forcibly sold if you end up bankrupt. See our Fact Sheet: Should I consider Bankruptcy for more information.


If you receive a Creditor’s Petition this is very serious. Get legal advice urgently.

There will usually be a Court date within a few days. It is very important that you turn up to the Court. If this is absolutely impossible, you need to send something to the court explaining why you cannot come and, if possible, arranging to attend by telephone.

On the first appearance you will probably be able to get an adjournment to either:

  • Get legal advice; or
  • Raise the money to pay the debt (for example, by selling your home or another asset, or applying for a loan).

You will be required to attend court again. The next time you attend court you will either need to have filed paperwork opposing the Creditor’s Petition (you will need legal advice to do this and you will need to have legal grounds for doing so), or proof that for example, your house is on the market (the contract for sale and agency appointment) or that a loan has been conditionally approved, or whatever it is you are doing to raise the money. The Court will only adjourn the matter a limited number of times.

You should continue to negotiate with the creditor at all times. You may be able to convince the creditor to discontinue the proceedings by consent, but usually only if you can pay the debt plus their legal costs.


Sometimes the first a person knows about being made bankrupt is that their bank account is frozen or they get a letter from the trustee in bankruptcy. If this happens, get urgent legal advice. If you have any grounds to challenge the bankruptcy, there are time limits for having the decision reviewed or appealed.

If you have plenty of property and intend to try to oppose or annul the bankruptcy (by paying out all the debts and expenses to date) you need to let the trustee know immediately in writing so that they can minimise the work they do in relation to the bankrupt estate (which will help reduce the amount you may ultimately have to pay).


Once you have been made bankrupt (that is a Sequestration Order has been made against you) you must file a Statement of Affairs. There are several very good reasons to do this:

  • You are obliged to by law – it is an offence not to
  • Even if you are thinking about applying to set aside or annul your bankruptcy, a completed Statement of Affairs may be necessary for the Court to make a decision about that
  • The usual 3 years and 1 day until discharge from bankruptcy does not start to run until you have filed your Statement of Affairs.


REMEMBER: Always get legal advice if you receive a Statement of Claim, Bankruptcy Notice or a Creditor’s Petition. There are serious consequences if you do not take action after receiving one of these documents.

A free financial counsellor can assist you if you are having trouble completing the Statement of Affairs – call 1800 007 007 for a referral to a service near you.

For legal advice in NSW contact Financial Rights on 1800 844 949.

This is only a brief guide and it is recommended that you GET LEGAL ADVICE to discuss the best option for you in your circumstances. See Fact Sheet: Getting Help for a list of additional resources.

Last Updated: May 2020