The Government has released draft laws that would make it harder to bankrupt someone over a modest debt. The involuntary bankruptcy threshold would double to $20,000 from 1 July 2027, and debtors would get 28 days to answer a bankruptcy notice. For creditors chasing directors on personal guarantees, the bigger practical change is time.

What is proposed

On 23 October 2026, Treasury released an exposure draft of the Treasury Laws Amendment (Personal Insolvency Amendments) Bill 2026. It would amend the Bankruptcy Act 1966 (Cth). Public comment closed on 3 November. The draft would:

  • raise the involuntary bankruptcy threshold from $10,000 to $20,000 from 1 July 2027, indexed each year from 2028–29;
  • give debtors 28 days, instead of 21, to respond to a bankruptcy notice; and
  • stop the proposal or acceptance of a debt agreement being an “act of bankruptcy” under s 40(1).

Assistant Minister Andrew Leigh said bankruptcy “should not be a life sentence”. A fourth change will be consulted on later. It would end permanent listing of discharged bankrupts on the National Personal Insolvency Index. When it was announced in 2024, records were to stay public for the bankruptcy plus seven years after discharge.

None of this is new. The proposals were consulted on in September 2023 and announced by the then Attorney-General on 8 July 2024. Responsibility for personal insolvency moved to Treasury in July 2025.

Why it matters now

Personal insolvencies are rising. AFSA data show 13,465 people entered a personal insolvency in 2025–26, up 9.9% on the year before. Bankruptcies made on creditors’ petitions rose 21.6%, from 824 to 1,002.

Queensland recorded 3,359 personal insolvencies, up 11.3%. In the June quarter, 30.4% of people entering personal insolvency nationally reported business involvement. Many are directors and sole traders.

What changes for creditors

A higher threshold. Debts under $20,000 could no longer found an involuntary bankruptcy. Smaller judgment debts would need other enforcement, such as an enforcement warrant. The figure that counts is the one in force when the creditor applies for the bankruptcy notice or presents the petition. From 2028–29, indexation would move it in steps of $1,000. For companies, the minimum for a statutory demand stays at $4,000.

More time. A bankruptcy notice is the usual first step. If the debtor does not comply, that is an act of bankruptcy, and the creditor can petition the court within six months. An extra week to comply pushes every enforcement timetable back.

Debt agreements. Today, proposing a debt agreement is itself an act of bankruptcy that creditors can rely on. Under the draft, it would not be. A debtor could put a proposal to creditors without exposing themselves to a petition on that ground alone. AFSA says around half of all debt agreements involve debts of less than $50,000.

What changes for directors

Directors usually meet bankruptcy through personal guarantees or director penalty notices. Those debts are rarely under $20,000, so the higher threshold will seldom help. The extra week to respond will.

The stakes are high. An undischarged bankrupt is automatically disqualified from managing corporations (Corporations Act 2001 (Cth) s 206B(3)). ASIC matches the National Personal Insolvency Index against the companies register to find disqualified officeholders.

What creditors should do now

  1. Review judgment debts between $10,000 and $20,000. If the bill passes, these debts could support a bankruptcy notice only until 30 June 2027.
  2. Allow 28 days to comply for bankruptcy notices applied for after the law starts.
  3. Petition promptly after an act of bankruptcy; the six-month window does not move.
  4. Treat a debt agreement proposal as a signal to review your position, not as a ground to petition.

What directors should do now

  1. Never ignore a bankruptcy notice. Time runs from service, and the grounds to set one aside are narrow.
  2. Get advice as soon as a guarantee is called on or a judgment is entered.
  3. Consider the alternatives early: a payment arrangement, a personal insolvency agreement or, if eligible, a debt agreement.
  4. Remember that a bankrupt cannot manage a company until discharged, unless the court gives leave or ASIC permits it.

What to watch

  • The bill. The exposure draft still has to be finalised, introduced and passed. As drafted, the changes would start the day after Royal Assent, but the $20,000 threshold would apply only from 1 July 2027. Bankruptcy notices applied for, and petitions presented, before the start date would stay under the current rules.
  • The Index. A separate consultation will settle how long bankruptcies stay public.
  • The Productivity Commission. Its business dynamism inquiry covers insolvency frameworks for individuals as well as companies. Its interim report is due in November 2026. See Insolvency reform on hold.

To discuss how these developments affect you, contact us on +61 7 3229 9800 or send us an enquiry online.

This article is general information only and is not legal advice.

Sources: Treasury — Reforms to the bankruptcy system, consultation (23 October to 3 November 2026), including the exposure draft Treasury Laws Amendment (Personal Insolvency Amendments) Bill 2026 (Schedule 1, items 1–3 and 8–9) and its explanatory materials; Assistant Minister Andrew Leigh — Bankruptcy reforms to give Australians a fairer chance to start again (23 October 2026); Attorney-General’s Department — Personal insolvency consultation and 8 July 2024 announcement; AFSA — Quarterly personal insolvency statistics (to June 2026); AFSA — Personal insolvencies up 13.1% in June quarter 2026 (25 August 2026); AFSA — Bankruptcy notice; AFSA — Creditor’s petition; AFSA — Consequences of a debt agreement; ASIC — Data-matching program with AFSA; Productivity Commission — Reducing barriers to business dynamism.