Bankruptcy & Insolvency Law - What Can I Do If I Am Declared Bankrupt?

Date: April 29, 2009

Authors: LAC Lawyers

The global economic crisis has no doubt affected millions of people and businesses world-wide. Australia is not immune and coupled with record high unemployment and talks of recession, it is not surprising that many people cannot pay their debts and the instance of bankruptcy proceedings being commenced by creditors has increased as a result.

There is a misconception by many that once you have been bankrupted there is nothing you can do and you have to suffer the consequences of losing your home or other assets along with been stuck with the title of “bankrupt” for three years. While this may be true to a certain extent it is not entirely true and there are ways of annulling the bankruptcy prior to the end of the three year period.

How does bankruptcy work?

The process is quite simple. If there is a debt of $2,000.00 or more a creditor may commence proceedings in the relevant jurisdiction and if successful will obtain a certificate of judgment. The judgment will be used as a basis to issue a “Bankruptcy Notice” which is essentially a demand for payment of the debt within 21 days.

During the 21 day period the debtor will have a few options. These include:

  1. Paying the debt;
  2. Arrange with the creditor for settlement of the debt;
  3. Make an application to extend the period of compliance;
  4. Make an application to the court to have the bankruptcy notice set aside

Failure to do any of the preceding things within the 21 day period will entitle the creditor to serve the debtor with a “Creditor’s Petition”. At this point the matter is now in the court system and a hearing date set. If during the hearing, everything is in order with respect to the creditor’s petition the court will usually make a “Sequestration Order”. This basically is the nail in the coffin and means that on that day the debtor is a bankrupt.

What can I do?

Having been declared a bankrupt, an official trustee will be appointed to the bankrupt’s estate and will take possession of the bankrupt’s property and arrange for their sale to satisfy the debt. There are a couple of ways in which the bankruptcy can be annulled. These are:

  1. Paying the debt in full;
  2. By Court order;
  3. On resolution of creditors being passed to accept the bankrupt’s proposal to enter into a composition or arrangement.

If the debt is a small debt that can be satisfied through either obtaining a loan from a financial institution or friends, then it is recommended that such financial accommodation be obtained as early as possible. Section 153A of the Bankruptcy Act provides that if the debt is paid in full, the bankruptcy shall be annulled and the trustee must as soon as practicable issue a certificate to the Official Receiver advising of the date of annulment. Annulment in this form will not require any court attendance.

Section 153B allows a court to make an order that the bankruptcy be annulled if it is satisfied that a sequestration order ought not to have been made. Simply put, if the bankrupt can prove that due to some serious procedural irregularity such as not being served with the creditor’s petition the court will exercise its discretion to annul the bankruptcy.

If the debt is large, it may be possible that creditors may elect to accept a lesser amount. In this instance, the bankrupt may make a proposal for a composition or enter into a scheme of arrangement under section 73. If such proposal is accepted by the creditors in a creditor’s meeting, then under section 74, the bankruptcy shall be annulled on the day which the special resolution was made.

How can we help?

Whether you have been served with a bankruptcy notice or creditor’s petition or have been made a bankrupt, our experience solicitors can guide you through the complexities of the bankruptcy procedure.

Contact us now for Fast, Accurate and Timely legal advice

Phone LAC Lawyers on NSW 1300 799 888 or VIC 1300 734 638 or send us an email

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