I am Being Made Bankrupt
Changes to bankruptcy laws to help people in financial difficulty as a direct result of coronavirus apply until September 2020. The changes include increasing the period for temporary debt relief and changes to bankruptcy notices. See the AFSA website for more details.
Always get legal advice if you receive a statement of claim, bankruptcy notice or a creditor’s petition. There are serious consequences if you do not take action after receiving one of these documents.
What is bankruptcy?
Bankruptcy is a legal process through which you are declared unable to pay your debts when they are
due. You may file for bankruptcy (voluntary bankruptcy) or, alternatively, creditors can apply to have you declared bankrupt. If you are declared bankrupt by either of the above means, you will no longer be allowed to manage your own finances, and a trustee will take control of your money and assets.
How can a creditor make someone bankrupt?
The most common way of making someone bankrupt is as follows (definitions can be found at the bottom of this fact sheet):
- The creditor serves a statement of claim on the person in debt.
- Apply to the court for a default judgment after 28 days (the creditor can do this if the debtor has not filed a defence)
- Apply for and serve a bankruptcy notice on the debtor (which must usually be paid within 21 days).
- File and serve a creditor’s petition on the debtor.
The court can then make a sequestration order (which means the person is bankrupt) if the creditor can show it is owed $5,000 or more (this has been temporarily raised to $20,000 during COVID-19) and there has been an act of bankruptcy in the last six months (in this case failure to pay in accordance with a bankruptcy notice)
You can be made bankrupt without ever turning up to court.
If you have received a statement of claim or complaint, see Factsheet 15
If you have received a creditor’s petition, you should get legal advice urgently. There will usually be a court date within a few days. It is very important that you turn up to the court. If this is absolutely impossible, you need to send notice to the court explaining why you cannot come and, if possible, arrange to attend by telephone.
On the first appearance you may be able to get an adjournment to either:
- Get legal advice
- Raise the money to pay the debt (for example, by selling your home or another asset, or applying for a loan).
You will be required to attend court again. The next time you attend court you will either need to have filed paperwork opposing the creditor’s petition (you will need legal advice to do this and you will need to have legal grounds for doing so), or proof that for example, your house is on the market. You should continue to negotiate with the creditor at all times. You may be able to convince the creditor to discontinue the proceedings by consent, but usually only if you can pay the debt plus their legal costs.
If you have received a bankruptcy notice, you usually have 21 days to either comply or apply to have it cancelled. However, amid the COVID-19 crisis, the time for compliance has been extended to six months. If you don’t do anything within the relevant time frame, you may be committing an “act of bankruptcy”.
You have four options:
- Do nothing (and risk being made bankrupt).
- Pay in accordance with the notice (usually within 21 days).
- Negotiate with the creditor about repayments (and start paying if you haven’t already).
- Get legal advice about opposing the bankruptcy notice. In most cases you will not have any grounds to challenge the bankruptcy notice and trying to do so will only add legal costs to your debt.
Failure to pay a bankruptcy notice is an act of bankruptcy which is easily proved by the creditor, and is the most common way people are made bankrupt.
Free legal advice
Community legal centres are independent, not-for-profit, community-based organisations. They provide free legal help to those most in need.
Contact the National Association of Community Legal Centres (02 9264 9595) for all centres in Australia.
Definitions
A statement of claim is a court document containing the creditor’s (plaintiff’s) claim against you
(the defendant), known as a Letter of Complaint or a Complaint Form 5a. For your reference an example statement of claim is available online.
Default judgement: A court will make an order if it agrees you owe a debt, even if you do not go to court. The debt then becomes a legal debt, called a judgement debt, and gives the creditor legal options to enforce the debt which are detailed in fact sheet 15.
A creditor’s petition is a document lodged with a court by a creditor against a debtor (someone who owes them money). The purpose of the creditor’s petition is to ask the court to make a debtor bankrupt.
