You have Judgment against a debtor individual, now what to do?
As advised in our blog regarding enforcement options, there are several possibilities to enforce a Judgment debt, one of which being bankruptcy proceedings.
In order to proceed with bankruptcy, a creditor must hold a Judgment entered by an Australian Court that was entered within the last 6 years of which the Judgment amount is above the threshold of $5,000.00 in accordance with s 41 of the Bankruptcy Act 1966 (Cth). If the Judgment amount be less than $5,000.00 but by adding interest accrued on top of the Judgment debt the amount exceeds $5,000.00, this will not allow for bankruptcy action to be taken. The amount of the Judgment at the date the Judgment was entered by the Court must exceed $5,000.00 without any additional amounts.
What to do after Judgment meets the requirements to proceed with bankruptcy?
Once Judgment has been obtained for an amount above the threshold, an online application may be made to the Official Receiver, via AFSA, for the issuing of a Bankruptcy Notice to be served upon the Judgment debtor. It is always best to personally serve a Bankruptcy Notice to ensure the Notice comes to the attention of the Judgment debtor, as it is a serious and potentially damaging action to the Judgment debtor’s future.
Once the Bankruptcy Notice has been issued, the Notice must be served within 6 months of the date of being issued by the Official Receiver.
Should the Notice be unable to be served within such time, an extension may be sought from the Official Receiver, however such application should be made prior to the expiration of the time to serve the Notice.
I have served the Notice, now what…
Once the Bankruptcy Notice has been served, the Judgment debtor will have a period of 21 days to either:
- Respond to the Notice;
- Pay the amount set out in the Notice; or
- Apply to the Court for the Bankruptcy Notice to be set aside.
Should the Judgment debtor fail to do any of the above options within the required 21 days, the Judgment debtor would have committed an act of bankruptcy and therefore, you will be at liberty to commence bankruptcy proceedings in the Federal Circuit Court of Australia against the Judgment debtor.
In order to commence bankruptcy proceedings, a Creditor’s Petition, together with the required supporting documentation, is required to be filed in the Federal Circuit Court of Australia. A substantial filing fee is payable to commence such proceedings – showing that commencing bankruptcy proceedings is not an action that should be taken lightly.
Once filed, the documents are then required to be served upon the Judgment debtor.
At the first return date before the Court of the Creditor’s Petition (which is listed on the sealed copy of the Creditor’s Petition), the Court will review the affidavit evidence relied upon by you and advise of any irregularities or absent information.
Should all requirements be satisfied by the Court, a sequestration order will be granted against the Judgment debtor declaring them bankrupt as at the date of the Order being made. The Registrar may also provide an order for costs incurred by the petitioning creditor. Such costs take priority as one of the first costs paid out of a bankrupt estate.
There are strict guidelines and requirements for bankruptcy proceedings. Contact Matthews Folbigg for specialist advice and assistance with running your bankruptcy proceedings.
Sequestration Order made!
Upon the granting of a sequestration order, the debtor will be declared as bankrupt and a trustee will be appointed to the debtor’s bankrupt estate. A trustee will proceed to undergo several investigations in order to realise any amounts that may be recovered in order to pay a dividend to creditors.
If you are a creditor of a bankrupt, it is important to take steps to immediately lodge a proof of debt form with the trustee.
It is important to note that, although a Judgment may be enforced for a period of 12 years, bankruptcy proceedings may only be commenced within the initial 6 years from the date Judgment was entered.
It is vital that the information provided in the Bankruptcy Notice is correct in order to avoid providing the Judgment debtor the opportunity to seek for the Notice to be set aside on the basis that the Notice is invalid.
Due to the technicality of the information able to be placed in a Bankruptcy Notice and the many methods of which a Bankruptcy Notice may be set aside by a Judgment debtor, we recommend that you seek legal assistance to proceed with bankruptcy action. In this regard, contact Matthews Folbigg for specialist advice in bankruptcy proceedings.