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May 11, 2015
Bankruptcy: What is It?

by Kristy Lewis

If you have a judgement against a defendant (“Debtor”) and meet the following criteria, you can enforce the judgment by commencing bankruptcy proceedings:

‑ The judgement is more than $5000, and

‑ The Debtor is present in Australia (or has a sufficient connection with Australia)

To commence bankruptcy proceedings a Bankruptcy Notice must be lodged in a proper form with the Insolvency and Trustee Service of Australia.

Serving a Bankruptcy Notice and Compliance Timeframes

After the Debtor has been served with the Bankruptcy Notice the Debtor must within 21 days of service comply with the Bankruptcy Notice by:

‑ paying the full amount of the judgement debt, or

‑ entering into a repayment arrangement, on terms acceptable to you

If the Debtor fails to comply with the Bankruptcy Notice the Debtor is deemed to have committed an act of bankruptcy. You may thereafter file for a Creditor’s Petition in the Federal Magistrates Court or Federal Court for the Debtor to be declared a bankrupt.

At the hearing of the Creditor’s Petition you must establish that the Debtor has committed an act of bankruptcy within the six (6) month period preceding the Creditor’s Petition being filed in the Court.

The Role of Trustees During Bankruptcy Proceedings

The most common act of bankruptcy relied upon is the failure of the Debtor to comply with the Bankruptcy Notice. If the Court deems that the Debtor has committed an act of bankruptcy, the Court may make a sequestration order making the Debtor a bankrupt. A trustee will thereafter be appointed to manage the Debtor’s estate.

The trustee will collect information about the Debtor’s assets and liabilities. Any creditors who wish to claim in the Debtor’s estate must lodge a proof of debt with the trustee.

The Difference Between Secured and Unsecured Creditors

Secured creditors will rank above any unsecured creditors and the unsecured creditors will be paid proportionately out of the funds available from the Debtor’s estate.

One disadvantage of bankruptcy proceedings is that the Debtor may have other creditors that rank ahead of you and/or there may not be sufficient funds in the Debtor’s estate to pay the all of your judgement debt.

If you require any advice in relation to bankruptcy proceedings, or wish to commence bankruptcy proceedings, please contact Kirsty Lewis of LBH on klewis@lbandh.com.au.