About Bankruptcy (Insolvency)
If you are unable to pay your debts and cannot come to suitable repayment arrangements with your creditors, Bankruptcy may be an option. Bankruptcy is a process where people who cannot pay their debts (the debtor) give up their assets and control of their finances, either by agreement or court order, in exchange for protection from legal action by the people they owe money to (the creditors).
Bankruptcy How To
A business or an Individual can become bankrupt in one of two ways– either voluntarily, by completing and filing a Debtor's Petition and Statement of Affairs., or involuntarily, by order of a court. Court orders generally occurs at the instigation of a creditor who is owed money. The creditor can apply to the Court to have you declared bankrupt by sequestration order.
Bankruptcy matters may be heard by the Federal Court or more often it’s the Federal Magistrates Court. Either way procedures and paperwork are the same in each court for bankruptcy matters.
A Creditor who claims that you owe them $5000 or more can apply to the appropriate Court to declare you bankrupt. This is called a Creditor’s Petition. If you receive a creditors petition it will include the time and date you are expected to attend court. To be successful in their claim in having you declared Bankrupt the creditor must prove to the Court that you have committed an act of bankruptcy.
Section 40 of the Bankruptcy Act sets out Acts of Bankruptcy The most frequently relied upon “act of bankruptcy” is non-compliance with a bankruptcy notice. A bankruptcy notice is a formal notice of demand requiring a debtor to pay the amount of a judgement debt to the creditor within the time specified in the bankruptcy notice. Furthermore A bankruptcy notice must be based on a final judgement or order for at least $5,000 which is less than six years old. A bankruptcy notice can be based on more than one judgement or order so long as the total of all the judgement amounts is at least $5,000.
If a debtor fails to comply with the bankruptcy notice within 21 days of it being served, they have committed an “act of bankruptcy”. It is this non-compliance with the notice that gives the creditor grounds to start bankruptcy proceedings against the debtor.
The debtor has two options either make an application to the court to extend the time to comply with the notice or Make an application to have the bankruptcy notice set aside. A guide on how to make application to set aside bankruptcy notice and/or to extend time for compliance can be found on the Federal Magistrates Court of Australia website.