How does someone make you bankrupt?

If you owe creditors a substantial sum of money and are wondering how they can make you a bankrupt, this article provides an overview of the most common process.

Creditor’s petition

If you owe a creditor $10,000 or more, the creditor can make an application to Court to make you a bankrupt. This is known as a creditor’s petition. There are certain formalities that a creditor would need to adhere to prior to filing a creditor’s petition. Below is a summary:

  • The creditor must first obtain a Judgment or Order to prove that you owe the creditor more than $10,000. The Judgment or Order must also be less than 6 years old at the time of filing the creditor’s petition; and
  • The creditor must then obtain and serve on you a Bankruptcy Notice. The Bankruptcy Notice sets out a time frame in which you must pay the creditor.

Failing to pay the amount claimed in the Bankruptcy Notice within 21 days will be deemed as an ‘act of bankruptcy’ pursuant to section 40 of the Bankruptcy Act 1966 (Cth). The creditor will need to prove that you have committed an act of bankruptcy in order to succeed in the creditor’s petition.

If the Court is satisfied that you have committed an act of bankruptcy, the Court will then make a sequestration Order. The Order formally declares and makes you a bankrupt.

Appointment of Bankruptcy Trustee

Once an Order for bankruptcy has been made, a Bankruptcy Trustee will be appointed to administer you bankrupt estate. It is the duty of a Bankruptcy Trustee to collect and sell all your divisible property to pay your creditors. Divisible property includes real property (i.e. your house) and motor vehicles above a certain amount.

More information on what happens to your assets in bankruptcy can be found here.

Contact us

If you owe a considerable amount of money to creditors, you may wish to speak to a professional. While bankruptcy releases most of your debts as at the date of bankruptcy, it does have some consequences.

Contact us at our Brisbane or Gold Coast offices for a free no-obligation consult. We can provide you a comprehensive advice including ways you can avoid bankrupty.


We’re happy to answer any questions you may have, so please don’t hesitate to call us and schedule a consultation.



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