Three Years Is Too Long. Make Bankruptcy Twelve Months.

I've been arguing this one for years and I'll keep arguing it: the default bankruptcy period in Australia should be twelve months, not three years.

This isn't a fringe position. A bill to do exactly that was introduced back in 2017, went through consultation, drew broad support from the people who work in this area, and then quietly died. We're still on three years.

Every year we don't change it, we take productive people out of the economy for two years longer than any purpose requires.

Where three years came from

It's worth saying plainly: there's no analysis showing three years is the right number. It's an inheritance. The period has been shortened over the decades as thinking evolved, and three years is simply where the shortening stopped.

Meanwhile other countries moved on. The United Kingdom went to twelve months in 2004 and the sky stayed up. Their fraud and abuse provisions did the work you'd want them to do — because that's what those provisions are for.

What the extra two years actually do

Here's the part that gets skipped in the debate. Ask what happens in years two and three that doesn't happen in year one.

Income contributions continue, so there's some additional recovery — but it's modest, because the assets that were going to be realised were realised early. Most of the money comes out in the first year.

What definitely continues is the restriction. You can't be a company director for the whole period. Credit is effectively closed. Certain licences and occupations stay blocked. Every one of those is a brake on the person's capacity to earn — which means a brake on the very income the contributions are drawn from.

So the extra two years recover a small amount of money by suppressing a much larger amount of economic activity. We're holding capable people in a holding pattern and calling it accountability.

And these are, overwhelmingly, small business people. Not fraudsters. Tradies whose builder went under owing them money. Operators who signed a personal guarantee on a lease in 2019 and got a pandemic. People who took a risk in an economy that says it wants risk-takers.

The argument against, and why it doesn't hold

The objection is always the same: shorten it and you'll get people treating bankruptcy as an easy exit.

I've spent nearly four decades with people going through this and I have never once met someone who found it easy. Not one. The shame alone is a deterrent well beyond anything the calendar adds. People destroy themselves financially to avoid it — drawing down super, borrowing from family, taking on lending at rates that guarantee the outcome.

If the concern is genuine abuse, the answer isn't punishing everyone for longer. It's the tools that already exist: objections to discharge, which extend the period to five or eight years where there's been non-compliance or concealment; offence provisions for fraudulent conduct; the trustee's power to investigate. Target the behaviour you're worried about instead of applying a blanket sentence to people whose only offence was a business that didn't make it.

What I'd change tomorrow

Twelve months as the default. Objection provisions retained and used properly where conduct warrants it. Everything else stays.

That's it. It's not radical — it's the position the UK reached over twenty years ago and the position a bill in our own parliament proposed nearly a decade ago.

The country talks constantly about backing small business and rewarding people who have a go. Then we take the ones who had a go and didn't get there, and we sideline them for three years.

I know what that stretch feels like from the inside. My first business went under in 1988, and the thing that got me back wasn't a longer penalty — it was working out what I was actually for and being allowed to get on with it.

If you're facing this right now, the law is what it is today and the sensible move is to understand exactly where you stand within it. And if you think three years is too long as well — say so. That's how these things eventually shift.

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