Received a bankruptcy notice? What it means and what to do in the 21 days

A bankruptcy notice is a formal demand, issued by AFSA at a creditor’s request, to pay a debt of $10,000 or more that a court has ordered you to pay. You have 21 days from the day it is served to comply. If you don’t, you commit an “act of bankruptcy”, and the creditor can apply to court to make you bankrupt. Get advice straight away: the deadline is short and can’t simply be ignored.

What is a bankruptcy notice?

A bankruptcy notice is issued by the Australian Financial Security Authority (AFSA) on the application of a creditor who holds a final judgment or order against you. It requires you to pay the debt, or make an arrangement the creditor accepts, within the time stated in the notice. For a creditor to apply:

• the debt must be $10,000 or more, and post-judgment interest can’t be counted to reach that minimum
• the judgment or order must be no more than 6 years old
• the creditor must serve the notice on you within 6 months of AFSA issuing it.

How long do you have to respond?

You have 21 days from the date the notice is served on you. Count the days carefully from the date of service, not the date on the notice.

What happens if you don’t comply?

1. Act of bankruptcy. If you don’t pay or reach an arrangement within 21 days, you commit an act of bankruptcy.
2. Creditor’s petition. Within six months of that act of bankruptcy, the creditor can apply to the Federal Circuit and Family Court or the Federal Court for a sequestration order.
3. Court hearing. The court sets a hearing date. At the hearing, it may make the order, which makes you bankrupt.

See our bankruptcy guide for what bankruptcy involves.

Your options when you receive a bankruptcy notice

• Pay the debt in full within the 21 days.
• Agree an arrangement with the creditor, such as a payment plan. Get it confirmed in writing before the 21 days end.
• Apply to the court to set the notice aside if you have grounds, for example a counter-claim, set-off or cross demand against the creditor. You must apply before the 21 days end. Get legal advice promptly.
• Consider a formal alternative, such as a personal insolvency agreement, if you can’t pay the debt and have other creditors too.

Ignoring the notice is the one option that is almost always worse.

Bankruptcy notices and company directors

For directors, a bankruptcy notice often comes from personal liability for a company’s debts, typically:

• a judgment on a personal guarantee, or
• ATO action on a director penalty notice.

In these cases, the company’s position and the director’s position need to be looked at together. Resolving the company’s debt, for example through small business restructuring, may also reduce the director’s personal exposure.

How Greengate helps

If you have received a bankruptcy notice, contact us as soon as possible. We can review your position and explain your options before the deadline. If the debt came from a company, our registered liquidators can advise on the company side at the same time. The first consultation is free and confidential. Call (02) 8318 3699 in Sydney or (07) 3868 1888 in Brisbane.

Common questions

How long do I have to comply with a bankruptcy notice?

21 days from the date the notice is served on you.

What is the minimum debt for a bankruptcy notice?

$10,000. Post-judgment interest can’t be included to reach that amount.

What happens if I ignore a bankruptcy notice?

You commit an act of bankruptcy, and the creditor can apply to court within six months for an order making you bankrupt.

Can a bankruptcy notice be set aside?

You can apply to the court to set it aside, for example if you have a counter-claim, set-off or cross demand. The application must be made before the time to comply ends.

Does a bankruptcy notice mean I am bankrupt?

No. It is a demand for payment. You only become bankrupt if a court makes a sequestration order, or if you apply for bankruptcy yourself.

This page is general information, not advice about your situation. Sources: AFSA Bankruptcy notice and Creditor’s petition.