Everything you will need to know about Bankruptcy Notices
If you have obtained a bankruptcy notice or court order you must act right away to prevent future distress. Owing somebody money regarded here as a creditor, may be any individual or business to whom you owe money. If you’re not able to pay money to a creditor, the creditor will phone the Australian Financial Security Authority (AFSA) who will subsequently issue a bankruptcy notice requesting payment of that money.
As expected, there is a threshold to the amount of money owing to creditors before they can consult with the AFSA, and the minimum amount is $5,000. Soon after the creditor has gotten hold of a final judgment, AFSA will issue you with a bankruptcy notice.
It’s integral that you take swift action if you receive a bankruptcy notice from the AFSA. You will commit an ‘act of bankruptcy’ if you fail to do any of the following:
- – Adhere to the bankruptcy notice within the requested timeframe mentioned on the notice (normally 21 days); or
- – Apply to the courts to ask for the bankruptcy notice be cancelled or set aside within the timeframe mentioned on the notice (normally 21 days).
Committing an act of bankruptcy indicates that you give your creditor the authority to apply to the Federal Circuit Court for a sequestration order, or to put it simply, an order that will make you legally bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice may be served to you in several ways; it could be validly served to you individually, by regular post, or hand delivered to your registered address. In specific circumstances, a bankruptcy notice may be served electronically, either via fax or email.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of these means, a court order can be acquired which permits creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To comply with a bankruptcy notice, you must do one of three things:
- You must pay in full the amount specificed in the bankruptcy notice; or
- Arrange an agreement with the creditor, for instance a payment plan over a specified timeframe. The creditor must agree to the payment arrangements T&C’s. It’s always suggested that the agreement is made in writing so you have documentation of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some advice. If you have a notice of bankruptcy, just call us here at Bankruptcy Experts Canberra on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken within the timeframe set out in the bankruptcy notice (usually 21 days from the date of the notice).
Can I get my Bankruptcy Set Aside?
If justified, you can apply to the court to have the bankruptcy notice set aside or cancelled. This mustn’t be taken lightly though, considering that if there are insufficient grounds to make an application then you will be liable to pay all the creditors legal expenses which only increases the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a practical idea to request that the court prolongs the timeframe for compliance with the bankruptcy notice, so you steer clear of committing an act of bankruptcy while the court processes your application. Simply put, don’t leave it to the last minute.
To have your bankruptcy notice set aside, one of the following conditions must apply:
- The debt claimed on the bankruptcy notice does not exist;
- There is a defect in the bankruptcy notice;
- You have grounds for a counter-claim, cross demand, or set-off, equal to or exceeding the level of debt issued in the bankruptcy notice; or
- The bankruptcy notice is an abuse of process.
What if the debt claimed on the bankruptcy notice does not exist?
To substantiate that the debt claimed on your bankruptcy notice does not exist, you have to produce evidence that:
- You have in fact paid the creditor the amount owing under the order or judgement; or
- You have appealed the order by launching proceedings to set aside the order or judgement.
In your application to set aside the bankruptcy notice, you can not simply say that you have a genuine argument to do so. You must have already filed the proper documents with the court that handed down the order. Further, you must have the ability to produce evidence to the Federal Circuit Court that illustrates that you have a genuine case for grounds of appeal.
Additionally, if you do not commence the process of setting aside the judgement or order prior to filing your application to set aside the bankruptcy notice, the Federal Circuit Court will not be able to extend the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. Consequently, you will have committed an act of bankruptcy.
What is a Defective Bankruptcy Notice?
A defect in the form or content of the bankruptcy notice emerges when the creditor has failed to obey the requirements of the Act, in which case you might have grounds to make an application for the bankruptcy notice to be set aside. Some defects are more severe than others, and not all defects will make a bankruptcy notice invalid as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Often, the defect must be significant or create confusion over the actions you must take to satisfy the bankruptcy notice for you to have the ability to set aside the bankruptcy notice.
There are some critical requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will consequently be void. The following details some examples where these critical requirements have not been met:
- The creditor’s address on the bankruptcy notice has to make it reasonably practicable for the debtor to make payment (e.g. PO Boxes may not be suitable);.
- The creditor’s and debtor’s name on the bankruptcy notice must match the creditor’s and debtor’s name in the order or judgement;.
- Attached to the bankruptcy notice must be a copy of the judgement or order;.
- It is a requirement that there is a timeframe for compliance included in the bankruptcy notice;.
- If the creditor is claiming interest on the debt owed to them, the calculations must be detailed in a separate document attached to the notice; and.
- If any part-payments made by the debtor, or any other allowed reductions, the total amount of these deductions must be specified in an independent document attached to the notice.
The following lists some scenarios where bankruptcy notice defects have not been serious enough to make them void:
- Failure to include the ACN of the company who is the creditor; and.
- The creditor’s address is listed as the address of their solicitors (assuming payment can be reasonably made to this address).
There are several other legal requirements that should be kept in mind. These include:
- The order or judgement must be at least $5,000, not including any post judgement interest being claimed by the creditor;
- A bankruptcy notice can still be issued if the total amount is lower than $5,000, provided that the total amount was higher than $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be founded on a final judgement or order that is currently owing to a creditor under s 40( 3) of the Act. A final judgement is defined as a judgement which finally disposes of the rights of the parties involved;
- A bankruptcy notice must be served with 6 months of its issue. The only exception is if the Official Receiver (reg 4.02 A) has increased this timeframe;
- The final order or judgement must not be stayed both at the time of issue of the notice and the time of its service. If a stay of execution is granted after service, it has no bearing on the bankruptcy notice;
- An overstatement of the amount claimed to be owed to a creditor does not revoke a bankruptcy notice, unless the debtor challenges the validity of the notice within the timeframe for compliance (s 41( 5)); and.
- The order or judgment on which the bankruptcy notice is based can not be more than 6 years old (s 41( 3)( c)).
Under what grounds could I counter-claim, set-off or cross demand?
To succeed using the grounds of counter-claim, set-off or cross demand, you will need to properly demonstrate to the court the following two items:
- The counter-claim, set-off or cross demand is equal to or in excess of the total amount claimed by the creditor in the bankruptcy notice. You must also satisfy the court that these claims are authenticated and have a reasonable likelihood of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor acquired the judgement on which the bankruptcy notice is based upon. Failure to take advantage of the opportunity to counter-claim, including any adversarial personal circumstances (such as lack of evidence or legal counsel), will not be adequate.
What is an Abuse of process?
An abuse of process results if you can establish that the reasons behind the bankruptcy notice is to pressure you to pay a debt, as opposed to a real effort by the creditor to invoke the court’s jurisdiction in relation to bankruptcy. If the former holds true, then you will have the chance to set aside the bankruptcy notice resulting from an abuse of process. To succeed using these grounds, you will need to produce evidence of collateral purpose or inappropriate pressure.
What If I think I have grounds to act on one of these items above?
If you find that you have a case for one of the abovementioned reasons to rebut your bankruptcy, you will need to get the following documents prepared, filed, and served for you to apply for your bankruptcy notice to be set aside:.
- Application (Form B2); and.
You can locate the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either secure a final order or an interim order.
Final orders have to detail the ideal result you aspire to receive and the legislative basis which the court can grant this decision. An example of a final order may be: “That bankruptcy notice (BN00231) issued on 15 June 2017, which was served to me on 1 July 2017, be set aside under section 30( 1) of the Bankruptcy Act 1966.” You would also need to provide a copy of the bankruptcy notice with your application.
Conversely, an interim order has to specify any outcomes you wish before the application is finally decided upon, and the legislative basis which the court can approve this decision. An example of an interim order may be: “The time for compliance with bankruptcy notice (BN00233) be increased up to and including 7 days after the outcome of this application by the Court under section 41( 6A) of the Bankruptcy Act 1966.”.
If you elect to make an application, it must be accompanied by an affidavit which specifies the grounds of your application in conjunction with the date the bankruptcy notice was served to you. If you’ve already made an application to set aside the judgement of the bankruptcy notice, a copy of this application/s also needs to be attached. It’s crucial that your affidavit must comply with rule 3.02 of the Rules, otherwise your application may be declined and your request for an extension of time to adhere to the bankruptcy notice may not be approved.
Filing your application.
When your documents are completed, they will need to be filed with the courts either online or face to face at the Federal Circuit Court Registry.
There is a lodging charge that will need to be paid, however in specific situations you can apply for a waiver of this fee.
Serving your documents.
Once you’ve filed your application and affidavit and they have been stamped, you must personally serve these documents to the creditor within three days after the documents have been filed.
If you are an individual, you must personally take the documents to the person identified on the document and hand it to them. If they refuse to take the documents, the person serving them may place the document in the presence of the individual to be served and verbally inform the individual what the documents are.
If you are an organisation, you must personally go to a registered office of the organisation and deliver the documents to an individual servicing that organisation. You don’t have to give the documents to the company’s principal workplace, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s registered addresses.
If you want another person to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a cost.
If you’re not certain whether you have grounds to set aside the bankruptcy notice, or you’re doubtful whether you should spend the time and money to apply due to financial reasons, call Bankruptcy Experts Canberra on 1300 795 575 for free advice. As an alternative, you can visit our website for more information: www.bankruptcyexpertscanberra.com.au