Public comment on a draft law that would make it harder to force Australians into Bankruptcy over relatively small debts closes today, 3 November. The proposal would double the involuntary bankruptcy threshold from $10,000 to $20,000 and give people a week longer to respond to a bankruptcy notice. For anyone carrying a tax debt, a Business Loan or unpaid trade bills, the changes could matter. But they are not law yet.

What the government has proposed

Assistant Minister Andrew Leigh announced the package on 23 October, releasing exposure draft legislation for consultation. The draft is titled the Treasury Laws Amendment (Personal Insolvency Amendments) Bill 2026 and would amend the Bankruptcy Act 1966.

The headline change lifts the minimum Debt a creditor must be owed before it can seek to bankrupt someone, from $10,000 to $20,000.

"Bankruptcy should not be a life sentence," Dr Leigh said in his media release.

He added: "Our bankruptcy laws should recognise that a financial setback needn't cast a shadow over the rest of someone's life."

Status check: an exposure draft, not an Act

It is important to be precise about where this sits. An exposure draft is a version of a bill released for public comment before it goes to Parliament.

Consultation closes today. After that, the government can revise the draft, introduce a bill, and then needs it to pass both houses and receive Royal Assent. Any of those steps could change the details or the timing.

According to a summary of the draft published on 29 October, the changes would apply from assent. Until then, the current $10,000 threshold and existing rules continue to apply.

The 28-day window and other changes

A summary of the draft sets out several further measures. Dr Leigh's release refers more generally to giving people "more time".

  • The time to respond to a bankruptcy notice would rise from 21 days to 28 days.
  • The $20,000 threshold could be met by a single debt or by debts added together.
  • The threshold would be indexed annually from 2028–29.
  • Proposing or accepting a debt agreement would no longer be an act of bankruptcy.

Under current law, a creditor generally needs a debtor to have committed an "act of bankruptcy" before it can petition the court. Failing to comply with a bankruptcy notice within the deadline is a common example.

That is why an extra seven days could be significant. It gives someone more time to pay, negotiate, seek advice or dispute the debt before that step is triggered.

The change to debt agreements addresses a separate problem. At present, proposing a debt agreement is itself an act of bankruptcy, which can expose a person to a petition while they are trying to reach a deal with creditors.

Ending permanent records on the insolvency index

The government also plans to end permanent listings on the National Personal Insolvency Index, the public record of bankruptcies and other personal insolvency arrangements.

According to Dr Leigh's release, this part would be done through regulations, with bankruptcies removed from the index seven years after they occur.

For people who went bankrupt years ago, a permanent public record can affect Job applications, rental applications and credit. A seven-year limit would bring the index closer to the idea that bankruptcy is a fresh start rather than a lifelong mark.

What it could mean for people with tax debts

Tax debts are like any other debt for the purposes of the threshold. The ATO, like other creditors, can rely on the Bankruptcy Act to recover what it is owed.

Raising the threshold would not wipe out or reduce any debt. A person who owes $15,000 would still owe $15,000, and interest and other recovery Options would remain.

What would change is the creditor's ability to use bankruptcy as a lever for smaller amounts. Debts between $10,000 and $20,000 would, on their own, no longer be enough.

The group most likely to notice is sole traders and small business owners, who often carry a mix of ATO, finance and trade debts in their own names. A slow quarter can push those balances past $10,000 surprisingly quickly, and the draft would give them more headroom before bankruptcy becomes a realistic threat.

Hypothetical example: Sam, a sole trader, owes $14,500 in overdue tax to the ATO. Under the current law, that single debt is above the $10,000 threshold. Under the draft, it would fall $5,500 short of $20,000.

Now suppose Sam also owes a supplier $7,200. The draft allows debts to be added together, and $14,500 plus $7,200 makes $21,700. That would be $1,700 above the proposed threshold.

If Sam were served with a bankruptcy notice after the changes took effect, the draft would give 28 days to respond rather than 21, a 33 per cent longer window.

The example is illustrative only. Whether a creditor could actually proceed would depend on the final law, the nature of the debts and other legal requirements.

Because the draft is not law, the current threshold still applies to debts today. The existing threshold and the 21-day window still apply.

Free financial counselling services and registered professionals can explain options such as payment arrangements and debt agreements.

The reforms also have limits. They don't change how much tax people owe, the ATO's general powers to collect it, or the consequences of bankruptcy itself once it occurs.

What to watch next

  • 3 November 2026: consultation on the exposure draft closes.
  • After consultation: whether the government revises the draft and introduces a bill to Parliament, and when.
  • Royal Assent: the CPA summary says the main changes would start from assent, so watch for the bill's passage.
  • Regulations: separate rules are needed to end permanent listings on the National Personal Insolvency Index.
  • 2028–29: the proposed start of annual indexation of the $20,000 threshold.

For now, the key message is that the rules haven't changed. The proposal offers more breathing room in future, but only once Parliament has had its say.