Skip to content

3 common questions relating to bankruptcy

Bankruptcy is a confusing area of the law. Unfortunately, however, it’s one that individuals do at times need to deal with. This article sets out some important information relating to bankruptcy.

1.  What does going bankrupt actually mean?

The first thing to note with regards to bankruptcy is that it relates to individuals, not companies. “Going bankrupt” generally means committing an “act of bankruptcy”, as defined in the Bankruptcy Act. Committing an “act of bankruptcy” includes, but is not limited to: acting in a manner which indicates that the debtor in question is bankrupt (such as refusing to pay invoices); failing to pay an amount that is due under the judgment of a court; or acting in a manner which is designed to delay creditors. There are many more actions which fall under the definition of an “act of bankruptcy”, but generally they relate to not being able to pay off liabilities.

2.  What happens when an act of bankruptcy has occurred?

Once a debtor has committed an “act of bankruptcy” it is possible for any creditor to petition the courts in order to have the debtor declared bankrupt. The court will then be in a position to decide whether to grant a sequestration order, which is effectively an order declaring the person in question bankrupt. It is important to note that in order for an individual to be declared bankrupt they must owe at least $5000 to one or more creditors.

If the courts issue a sequestration order a trustee will be appointed as administrator of the financial affairs of the bankrupt person. Generally, the role of the trustee in bankruptcy is to sell the debtor’s assets and repay the debtor’s creditors. It is important to note that secured creditors will be paid first. Unsecured creditors may only receive a small percentage of the amount owing to them, if anything.

An individual will remain bankrupt until he or she is discharged, which usually occurs after 3 years, but sometimes earlier if a court orders it.

3.  Can I declare bankruptcy?

You sure can. If you discover that you have committed an “act of bankruptcy”, as set out above, you can ask a court to declare you bankrupt. In other words, you will be declaring voluntary bankruptcy.

Please note that LegalVision is a commercial law firm and cannot assist with these matters. We recommend you contact your local law society.

Register for our free webinars

Demystifying M&A: What Every Business Owner Should Know

Online
Understand the essentials of mergers and acquisitions and protect your business value. Register for our free webinar.
Register Now

Social Media Compliance: Safeguard Your Brand and Avoid Common Pitfalls

Online
Avoid legal pitfalls in social media marketing and safeguard your brand. Register for our free webinar.
Register Now

Building a Strong Startup: Ask a Lawyer and Founder Your Tough Questions

Stone & Chalk Tech Central, Level 1 - 477 Pitt St Haymarket 2000
Join LegalVision and Bluebird at the Spark Festival to ask a lawyer and founder your startup questions. Register now.
Register Now

Construction Industry Update: What To Expect in 2026

Online
Stay ahead of major construction regulatory changes. Register for our free webinar.
Register Now
See more webinars >
Lachlan McKnight

Lachlan McKnight

CEO | View profile

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

Read all articles by Lachlan

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards