I’ve just received a Bankruptcy Notice. What now?

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If you have received a bankruptcy notice the person or company who sent it to you is threatening to bankrupt you.

This is a very serious matter requiring your immediate attention.

If you do not respond to the bankruptcy notice within the time required in the document, you may be considered at law to have committed an act of bankruptcy. Committing an act of bankruptcy is the last stage before a court order is made allowing a trustee in bankruptcy to take control of your assets and finances.

It is therefore imperative that you urgently seek professional advice if you have received a bankruptcy notice.

You should contact a lawyer whether or not you believe you owe the debt, and whether or not you can afford to pay the amount stated on the bankruptcy notice, because an experienced bankruptcy lawyer (as you will see below) may be able to set aside, dispute or otherwise invalidate the bankruptcy notice on technical legal grounds.

Important information regarding bankruptcy notices

Bankruptcy notices are issued in Australia under the Bankruptcy Act 1966. Before 25 March 2020, a bankruptcy notice could be issued for a minimum amount owing of $5,000. However, since the advent of COVID-19, the minimum amount has increased to $20,000.    

Serving a bankruptcy notice on a person under the Bankruptcy Act is usually the first step a creditor takes towards having a person who owes them money declared bankrupt. Service means the bankruptcy notice must be received by the person who owes them the money; not a relative or friend living with them.

A person that has received a bankruptcy notice usually has 21 days to respond. However, the advent of COVID-19 now means that a debtor (the person who has received the bankruptcy notice) has 6 months to respond to a bankruptcy notice if it was issued on or between 25 March 2020 to 24 September 2020.

As the law currently stands, if a person receives a bankruptcy notice on or after 25 September 2020 they will only have 21 days to respond, however, depending upon the ongoing effects of COVID-19, this date may be extended.

Failing to adequately respond to a valid bankruptcy notice within the relevant time means that the debtor will be considered to have committed an act of bankruptcy under the Bankruptcy Act. This has far reaching consequences. It enables the creditor to file an application in the Federal Circuit Court seeking an order declaring the debtor bankrupt.

If the creditor’s application is successful and the debtor is declared bankrupt, a bankruptcy trustee will be appointed by the Court to administer their financial affairs. The trustee will distribute the debtor’s divisible assets amongst their creditors. This can include part of any income they are receiving and the family home if there is equity available.

The minimum period for bankruptcy is 3 years. However, there is scope for this to be extended up to eight years if the debtor is uncooperative and it is in his creditors’ interests to do so.

After three years the debtor is automatically discharged from bankruptcy, but a record of their bankruptcy will remain permanently available to anyone searching the National Personal Insolvency Index database. This may adversely affect the debtor’s ability to obtain credit or finance in the future even after their discharge from bankruptcy.

Important considerations

Because failure to respond to a bankruptcy notice has such serious consequences, the creditor issuing it must have strictly complied with all legal formalities under the Bankruptcy Act for issuing and serving a bankruptcy notice. Some of these considerations are set out below.

How was the bankruptcy notice served?

How you received your bankruptcy notice is extremely important. You should make a note of how and when you received it and keep copies of all written communications you received with it.

Are the creditor’s details correct?

Do you know the person or company who has sent you the bankruptcy notice? Compare the details on the bankruptcy notice with previous documents you have received from them. Do they make sense or is there some confusion?   

Are your details correct?

Has the person or company who sent you the bankruptcy notice correctly described your details in the bankruptcy notice? This is very important; particularly in relation to your name.

Were you aware there was a judgment against you?

The bankruptcy notice will refer to and have attached to it a judgment. The judgment will have a Court heading on it describing the Court it was issued from, a claim number, and the parties concerned with that claim. Are you familiar with those Court proceedings, or is that the first time you became aware of them? You may be able to appeal or set aside the Court judgment.

Do you owe the creditor money?

If you are not familiar with the Court proceedings or judgment, check your records to see if you have ever had any contact with the person or company who issued the bankruptcy notice. Situations have arisen where the wrong person has been sued for a debt because they have a similar name to the actual debtor.

If you have dealt with the creditor before, according to your own records and understanding, did you still owe them any money? If there was a balance owing to the creditor, was there another reason you had not paid it? Did they owe you a similar or larger amount of money?

Is the amount claimed overstated?

Check your records to confirm whether the amount being claimed by the creditor in their judgment for the claim amount is the same as the balance you thought was owing. Has the creditor claimed in excess of what you thought as owing?

You may have these options

As you can see, there are many important considerations to be examined before responding to a bankruptcy notice. Investigating these considerations and gathering information to identify any errors in the bankruptcy notice takes time. We therefore urge you to consider those matters as soon as possible as they will determine your options to respond to the bankruptcy notice.

In broad terms, your options are:

To pay the amount claimed in the bankruptcy notice within the relevant time

To arrange with the creditor who issued it to settle the amount claimed

To apply to the Federal Circuit Court to delay or set aside the bankruptcy notice

If the information in the bankruptcy notice is completely accurate, the first two options are the appropriate ones for you to consider.

If you do not currently have the financial means to pay the full amount claimed, and the creditor will not agree to an informal arrangement to settle that amount, a personal insolvency agreement under Part X of the Bankruptcy Act is a formal option that may be available to you to achieve that outcome.

Alternatively, if the bankruptcy notice is not accurate, you may be able to apply to set it aside on these grounds:

  • You have applied to set aside the judgment upon which it is founded
  • You have a claim against the creditor exceeding the judgment amount
  • There is a substantial defect in the bankruptcy notice capable of misleading you
  • Enforcement of the judgment upon which the bankruptcy notice was founded had been stayed or suspended at the time the bankruptcy notice was issued or served
  • The amount claimed in the bankruptcy notice is overstated
  • There is an error in your name or the creditor’s name in the bankruptcy notice
  • The bankruptcy notice is incomplete
  • You do not owe the amount claimed to the creditor

This is not an exhaustive list. Bankruptcy is a technical and complex area of law and you should seriously consider obtaining legal advice whether or not you believe that there may be grounds to set aside the bankruptcy notice you have received.

Setting aside the bankruptcy notice will prevent you committing an act of bankruptcy upon which the creditor who issued the bankruptcy notice could rely to take steps to bankrupt you.

Contact Gibbs Wright Litigation Lawyers

If you have recently received a bankruptcy notice and require assistance to urgently assess its ramifications for you, one of our expert team of solicitors will be happy to help you. Contact Gibbs Wright Litigation Lawyers today for a free and confidential initial consultation to explore your options and legal rights.

The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.

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