HELP I’M BEING MADE BANKRUPT!
This fact sheet is for information only. It is recommended that you
get legal advice about your situation.
CASE STUDY
FACT SHEET
Eduardo was out of work for almost 6 months and fell
behind on his strata management fees for the apartment he
was paying off. He had also been in dispute with the strata
management company over complaints about his vehicle
which leaked oil in the driveway. Every time he talks to
someone, the amount he owes seems to have grown. He
received a whole lot of paperwork which he threw in the bin
out of anger and frustration. Now his bank account has been
frozen and he has received a letter from someone claiming to
be his trustee in bankruptcy.
You can be forced into bankruptcy if you have committed an Act of
Bankruptcy. Common Acts of Bankruptcy include failing to respond
to a Bankruptcy Notice (see below), presenting a debt agreement
proposal or debtors petition, or having a writ of execution returned
unexecuted.
CALL THE
CREDIT & DEBT
HOTLINE ON
1800 007 007
Bankruptcy is a serious matter, meaning all your property apart
from some protected items, will be sold for the benefit of your
creditors. If you own your home (including an apartment/home
unit) or you are paying it off, it can usually be taken and sold by the
trustee in bankruptcy. Any other property or valuables you own
may also be taken. You may also have to pay contributions from your
income (depending on what you earn), and face other restrictions
and consequences. See our Fact Sheet: Should I consider
Bankruptcy for more information or go to www.afsa.gov.au.
If you receive paperwork, such as a Statement of Claim, Bankruptcy
Notice, or Creditor’s Petition you need to get advice urgently! The
process is very difficult and expensive to undo if you leave it too late.
Financial Rights Legal Centre
ABN 40 506 635 273
Fact sheets are information
only and should not be relied
upon as legal advice. This
information only applies to
NSW.
©2014 Financial Rights
All rights reserved.
HOW DOES A CREDITOR MAKE SOMEONE BANKRUPT?
The most common way of making someone bankrupt is as follows:
1. Serve a Statement of Claim on the debtor
2. Apply to the court for a default judgment after 28 days (the
creditor can do this if the debtor has not filed a defence)
3. Apply for and serve a Bankruptcy Notice on the debtor (which
must usually be paid within 21 days)
4. File and serve a Creditor’s Petition on the debtor.
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The Court can then make a Sequestration Order (which means the person
is bankrupt) if the creditor can show:
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It is owed $5000 or more
●●
There has been an act of bankruptcy in the last 6 months (in this
case failure to pay in accordance with a Bankruptcy Notice)
You can be made bankrupt without ever turning up to Court.
FACT SHEET
There are other acts of bankruptcy that a Creditor’s Petition can be
based on, some of which do not even require a judgment debt, such
as proposing or terminating a Debt Agreement (see our Fact Sheet:
Debt Agreements), or filing a Declaration of Intention to File a Debtor’s
Petition. In that case, a Creditor’s Petition will be the first document the
debtor receives about the bankruptcy proceedings.
WHAT IF I RECEIVE A STATEMENT OF CLAIM?
Get urgent legal advice. See our Fact Sheet: Debt Recovery in the Local
Court.
If you do not owe the debt, or all of it you will need to lodge a defence. If
the claim relates to consumer credit, you may be able to lodge a dispute
with a free independent dispute resolution service. (see below).
If you do owe the debt and it is not a consumer credit debt, you should try
to negotiate a repayment arrangement directly with the creditor. Even if
they don’t agree, you can simply start paying if you have account details
but keep records of all payments made.
IMPORTANT – CONSUMER CREDIT CONTRACTS. If you receive a
statement of claim for a consumer credit debt, such as a credit card,
personal loan, home loan or goods rental agreements (consumer lease),
DO NOT lodge an application to pay by instalments unless there is
already a judgment against you. You can lodge a dispute with a free
dispute resolution service instead, which will stop the legal proceedings.
You can do this if you dispute the debt or if you simply cannot afford to
pay the amount claimed in one lump sum and you need help to negotiate
a repayment arrangement. See our Fact Sheet: Dispute Resolution
(Financial).
HOW WILL I KNOW IF THERE IS A JUDGMENT AGAINST ME?
You will not be told by the Court when judgment is entered. If you have
not lodged a defence, you can contact the Court listed on the paperwork
or you may be able to ring 1300 679 272 to find out if there is a judgment
listed. If you are not defending the debt (or lodging a claim in a dispute
resolution service), and you cannot negotiate a repayment arrangement
with the creditor, you can apply to the Court to pay by instalments. See
our Fact Sheet: Applying to Pay by Instalments.
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET |BEING MADE BANKRUPTCY
You should immediately begin making payments in accordance with your
application, even before you find out whether the court has accepted it.
An instalment order will stop the creditor from being able to make you
bankrupt, but only if you are paying exactly in accordance with the order.
Being even one day late or one dollar short can leave you vulnerable to
bankruptcy proceedings!
WHAT IF I RECEIVE A BANKRUPTCY NOTICE?
You have only 4 options:
FACT SHEET
●●
Do nothing (and risk being made bankrupt)
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Pay in accordance with the notice (usually within 21 days)
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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 the most common way people are made
bankrupt.
You can still apply to the Court to pay the debt by instalments but this
won’t necessarily stop the bankruptcy proceedings. An instalment order
will only prevent a creditor proceeding to make you bankrupt if you get it
BEFORE a Bankruptcy Notice has been issued.
If you receive a Bankruptcy Notice and you never received a Statement of
Claim, you should get urgent legal advice. You may have grounds to apply
to set aside the judgment or you have a set-off, in which case you will
also need to lodge a Notice stating grounds of opposition to application,
interim application or petition (Form 5) in the Federal Circuit Court in
relation to the Bankruptcy Notice. You will need to show both that you
did not receive the court papers AND that you have a defence and/or setoff.
You would then need to appear in the Federal Circuit Court AND the
court where the judgment was obtained. You should seek legal advice, as
you can incur substantial costs.
GETTING THE DEBT BELOW $5,000
If at any time you can get the debt below $5,000 you can stop the creditor
making you bankrupt. This can be difficult because the creditor may not
accept any payments but it is worth trying if you can find the money.
Unfortunately, even if you succeed there is a risk that another one of
your creditors may be substituted in to make up the amount required.
The same creditor can also add in other amounts owing that were
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not included in the judgment, but were outstanding prior to the act of
bankruptcy (the non-payment of the Bankruptcy Notice). For example,
if there were further unpaid strata fees after the statement of claim was
issued, but before the Bankruptcy Notice, in the case study above, these
may be added to make up the $5,000.
BUT IT’S NOT FAIR!
It is not uncommon for people to be upset about a judgment debt because
in their view they should not owe the money claimed. If you feel this way
you should get legal advice, but if you have no legal defence, then you
need to pay or face the consequences, which may include bankruptcy.
FACT SHEET
It is very hard to accept something that is not fair and move on, but if
you can possibly pay a judgment debt, you need to do so unless you are
not concerned about being made bankrupt (some people own nothing,
have very little income and don’t care about the other consequences of
bankruptcy).
If you are made bankrupt when you could have paid the debt, it will cost
you many thousands of dollars more than the amount of the debt to
annul the bankruptcy. This is because you will have to pay all the costs of
the creditor’s legal representatives, and the trustee, in addition to your
debt(s).
WHAT IF I RECEIVE A CREDITOR’S PETITION?
If you receive a Creditor’s Petition this is very serious. 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 something to the court explaining why you cannot come and, if
possible, arranging to attend by telephone.
On the first appearance you will probably be able to get an adjournment
to either:
●●
Get legal advice; or
●●
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 (the contract for sale and agency appointment) or that a loan has
been conditionally approved, or whatever it is you are doing to raise the
money. The Court will only adjourn the matter a limited number of times.
You should continue to negotiate with the creditor at all times. You
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET |BEING MADE BANKRUPTCY
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.
I HAVE JUST FOUND OUT I’VE BEEN MADE BANKRUPT – WHAT
NOW?
Sometimes the first a person knows about being made bankrupt is
that their bank account is frozen or they get a letter from the trustee
in bankruptcy. If this happens, get urgent legal advice. If you have any
grounds to challenge the bankruptcy, there are time limits for having the
decision reviewed or appealed.
FACT SHEET
If you have plenty of property and intend to try to oppose or annul the
bankruptcy (by paying out all the debts and expenses to date) you need to
let the trustee know immediately in writing so that they can minimise the
work they do in relation to the bankrupt estate (which will help reduce
the amount you may ultimately have to pay).
FILE A STATEMENT OF AFFAIRS!
Once you have been made bankrupt (that is a Sequestration Order has
been made against you) you must file a Statement of Affairs. There are
several very good reasons to do this:
●●
You are obliged to by law
●●
A completed Statement of Affairs may be necessary for the Court
to make a decision about whether to set aside or annul your
bankruptcy if this is relevant
●●
The usual 3 years and 1 day until discharge from bankruptcy does
not start to run until you have filed your Statement of Affairs. A
free financial counsellor can assist you if you are having trouble
completing the Statement of Affairs – call 1800 007 007 for a
referral to a service near you.
WARNING: IF YOU DO NOT FILE A STATEMENT OF AFFAIRS YOU MAY
REMAIN BANKRUPT FOREVER!
REMEMBER: 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.
This is only a brief guide and it is recommended that you GET LEGAL
ADVICE to discuss the best option for you in your circumstances. See
Fact Sheet: Getting Help for a list of additional resources.
Last Updated: February 2016
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