The Australian Government is delivering on our commitment to make the personal insolvency system fairer for businesses and individuals under financial stress.
Exposure draft legislation released today will double the debt threshold for involuntary bankruptcy from $10,000 to $20,000, give people more time to respond to bankruptcy notices, and remove a barrier to negotiating debt agreements.
The Government is also progressing changes to end permanent listings on the National Personal Insolvency Index, allowing people to be removed seven years after bankruptcy.
Most insolvencies stem from job loss, illness, relationship breakdown or business downturns. Accountability is essential, but so is the opportunity to respond, restructure and, ultimately, rebuild.
Increasing the involuntary bankruptcy threshold to $20,000 will help ensure individuals and small business owners aren’t forced into bankruptcy over relatively modest debts. It will make bankruptcy a more proportionate response, reserved for circumstances where other avenues to resolve debts have been exhausted.
The legislation will also give debtors more time to respond to bankruptcy notices. Financial distress often comes with personal strain, making it harder to deal with paperwork, negotiate with creditors or manage disrupted housing and employment. Extra time can mean the difference between reaching an agreement and being pushed into bankruptcy.
A third reform will remove the act‑of‑bankruptcy status from proposing or accepting a debt agreement. Under current arrangements, attempting to negotiate a debt agreement can itself trigger bankruptcy, even when someone is acting in good faith to settle their debts.
Removing this provision will encourage earlier engagement between debtors and creditors, helping resolve financial difficulties before they escalate.
Following these legislative reforms, the Government will amend regulations to end permanent listings on the National Personal Insolvency Index. Under the proposed changes, bankrupts will be able to be removed from the Index after seven years, giving people a better chance to move on or start again once their debts are resolved.
These reforms will help build a more dynamic and resilient economy, bringing Australia’s bankruptcy system into line with contemporary expectations of fairness, today’s lending environment and the needs of small businesses and entrepreneurs.
The Government is inviting submissions on the exposure draft legislation to ensure the reforms address the concerns of debtors while protecting the broader operation of credit markets.
Submissions can be made through the Treasury website until 3 November 2026.
Attributable to Assistant Minister for Productivity, Competition, Charities and Treasury, Andrew Leigh
“Bankruptcy should not be a life sentence. People can find themselves in financial trouble through illness, losing a job or a business downturn. Our bankruptcy laws should recognise that a financial setback needn’t cast a shadow over the rest of someone’s life.”