What Is a Bankruptcy Notice?
A bankruptcy notice is a formal demand for payment issued through the Australian Financial Security Authority (AFSA) under the Bankruptcy Act 1966 (Cth). It is one of the most powerful tools available to creditors seeking to recover a judgment debt and represents the first formal step toward making a debtor bankrupt.
At Boss Lawyers, we regularly act for both creditors issuing bankruptcy notices and debtors who have been served with one. This guide explains the entire process — from issuing through to compliance or challenge — so you can make informed decisions about your next steps.
When Can a Creditor Issue a Bankruptcy Notice?
A creditor can apply to AFSA for a bankruptcy notice when the following conditions are met:
- A final judgment or final order has been obtained from an Australian court (or a registrable foreign judgment)
- The judgment debt (or the aggregate of judgment debts) is provable and unsatisfied — there is no minimum debt threshold for issuing a bankruptcy notice itself. (Note: to present a subsequent creditor’s petition under s 41 of the Bankruptcy Act 1966 (Cth), the debt must be at least $10,000.)
- The judgment has not been stayed and remains enforceable
- The debtor has not satisfied the judgment in full
Under section 40(1)(g) of the Bankruptcy Act, a debtor commits an “act of bankruptcy” if they fail to comply with a bankruptcy notice within the time allowed. This act of bankruptcy then forms the basis for a creditor’s petition to the Federal Circuit and Family Court of Australia.
How to Apply for a Bankruptcy Notice
The application process involves:
- Completing AFSA Form 1 — the application for a bankruptcy notice
- Attaching a sealed copy of the judgment relied upon
- Paying the prescribed filing fee (currently $120 as at April 2026)
- Lodging the application through the AFSA online portal or by post
AFSA will then issue the bankruptcy notice, typically within 5–10 business days. The notice will specify the amount owing and provide 21 days for the debtor to comply.
How Must a Bankruptcy Notice Be Served?
Valid service is critical. If service is defective, the entire bankruptcy notice may be set aside by the court. The Bankruptcy Act and the Federal Circuit and Family Court of Australia (Bankruptcy) Rules 2021 prescribe the following methods of service:
Personal Service (Primary Method)
The bankruptcy notice must be personally served on the debtor. This means physically handing the document to the debtor. Personal service is the default and most reliable method. It can be effected by:
- The creditor themselves
- A process server engaged for the purpose
- Any person over 18 years of age
Substituted Service
If personal service is impracticable (for example, the debtor is evading service or cannot be located), the creditor may apply to the court for an order for substituted service under Rule 3.02. Common forms of substituted service include:
- Service by post to the debtor’s last known address
- Service by email
- Service on the debtor’s solicitor
- Service by affixing the notice to the door of the debtor’s residence
The court will only grant substituted service where it is satisfied that the proposed method is reasonably likely to bring the bankruptcy notice to the debtor’s attention.
Service Outside Australia
Where the debtor is located outside Australia, the creditor may need leave of the court to serve the bankruptcy notice overseas. The court will consider whether the debtor has assets in Australia and whether bankruptcy proceedings would serve a useful purpose.
Time Limits: The 21-Day Compliance Period
Once validly served, the debtor has 21 days to:
- Pay the debt in full (including any interest and costs specified in the notice)
- Secure or compound the debt to the creditor’s satisfaction
- Apply to the court to set aside the bankruptcy notice
If the debtor does none of these things within 21 days, they commit an act of bankruptcy. The creditor then has six months from the date of the act of bankruptcy to file a creditor’s petition.
How to Respond to a Bankruptcy Notice (For Debtors)
If you have been served with a bankruptcy notice, it is essential to act immediately. Do not ignore it. Your options include:
1. Pay the Debt
The simplest option is to pay the full amount specified in the notice, including any interest and costs, within 21 days. Payment should be made directly to the creditor or their solicitor, and you should obtain written confirmation of receipt.
2. Negotiate a Settlement
While the bankruptcy notice requires payment in full, you may be able to negotiate a settlement or payment arrangement with the creditor. If the creditor agrees, they can withdraw the notice. However, the 21-day clock continues to run during negotiations, so you must either reach agreement within 21 days or apply to set aside the notice as a precaution.
3. Apply to Set Aside the Bankruptcy Notice
Under section 40(1)(g) and section 41(6A) of the Bankruptcy Act, a debtor may apply to set aside a bankruptcy notice on several grounds:
- Counter-claim, set-off, or cross demand: The debtor has a genuine counter-claim, set-off, or cross demand that equals or exceeds the amount of the judgment debt. This is the most common ground — see Glew v Harrowell of Hunt & Hunt Lawyers [2003] FCA 373.
- Defect in the notice: The bankruptcy notice contains a defect that would cause substantial injustice if not set aside (e.g., the amount is overstated, the judgment is incorrectly described).
- Invalid service: The notice was not validly served.
- Other sufficient cause: Any other reason the court considers sufficient — for example, a pending appeal against the underlying judgment.
Applications to set aside must be filed within the 21-day compliance period. Filing the application does not automatically extend the compliance period — you should seek an interim order extending time if there is any risk the application will not be determined within 21 days.
Common Grounds for Setting Aside a Bankruptcy Notice
In our experience, the most successful grounds for setting aside a bankruptcy notice are:
Counter-Claim or Set-Off
The debtor must demonstrate a genuine claim against the creditor that is not frivolous or vexatious. The counter-claim need not be quantified precisely, but the debtor must show:
- The claim is genuine and not manufactured for the purpose of defeating the bankruptcy notice
- The claim equals or exceeds the judgment debt
- There is sufficient evidence to support the claim
Overstatement of the Debt
If the bankruptcy notice claims more than is actually owed (for example, by including amounts already paid or incorrectly calculated interest), this may constitute a defect warranting setting aside the notice.
Pending Appeal
Where the debtor has filed an appeal against the underlying judgment, the court may exercise its discretion to set aside or stay the bankruptcy notice pending the appeal — see Ahern v Deputy Commissioner of Taxation [1987] FCA 312.
What Happens After Non-Compliance?
If the debtor fails to comply with the bankruptcy notice within 21 days and does not successfully apply to set it aside, the creditor may:
- File a creditor’s petition in the Federal Circuit and Family Court within 6 months of the act of bankruptcy
- The court will then hear the petition and, if satisfied the requirements are met, make a sequestration order (an order that the debtor’s estate be sequestrated — i.e., the debtor is made bankrupt)
- A registered trustee in bankruptcy will be appointed to administer the bankrupt’s estate
Practical Tips for Creditors
- Ensure the judgment is final and enforceable before applying for the notice — any stay or pending appeal weakens your position
- Use a professional process server for personal service — their affidavit of service will be critical evidence
- Keep meticulous records of all amounts owing, payments received, and interest calculations
- Act promptly after non-compliance — you have only 6 months from the act of bankruptcy to file a creditor’s petition
- Consider whether bankruptcy is the right enforcement mechanism — in some cases, enforcement of the judgment through other means (garnishee orders, charging orders, writs of execution) may recover more
Practical Tips for Debtors
- Do not ignore a bankruptcy notice — the consequences of non-compliance are severe
- Seek legal advice immediately — the 21-day clock starts running from the date of service and cannot be paused
- Consider all options — payment, negotiation, setting aside the notice, or making a Part X proposal (formal arrangement with creditors without bankruptcy)
- If you have a genuine counter-claim, gather evidence quickly and file the application to set aside as early as possible
- Understand the consequences of bankruptcy — it lasts for 3 years, affects your credit rating for at least 5 years, and may impact professional licences and directorships
Key Legislation and Resources
- Bankruptcy Act 1966 (Cth) — sections 40, 41, 43, 44
- Federal Circuit and Family Court of Australia (Bankruptcy) Rules 2021
- AFSA — Australian Financial Security Authority
How Boss Lawyers Can Help
Whether you are a creditor looking to issue a bankruptcy notice as part of a debt recovery strategy, or a debtor who has received one and needs urgent advice, Boss Lawyers’ insolvency team can help.
We act for clients across Brisbane, the Gold Coast, and Queensland in all aspects of insolvency, debt recovery, and commercial litigation.
Call 1300 267 711 or contact us online for a confidential discussion about your situation.
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This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
