Everything you will need to know about Bankruptcy Notices
If you have obtained a bankruptcy notice or court order you must respond right away to minimise future grief. Owing somebody money regarded here as a creditor, can be any individual or company to whom you owe money. If you’re unable to pay money to a creditor, the creditor will connect with the Australian Financial Security Authority (AFSA) who will in turn dispense a bankruptcy notice requesting payment of that money.
As you would expect, there is a limit to the level of money owing to creditors before they can consult the AFSA, and the minimum amount is $5,000. Once the creditor has gotten hold of a final judgment, AFSA will issue you with a bankruptcy notice.
It’s paramount 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:
- Comply with the bankruptcy notice inside the requested timeframe reported on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe reported on the notice (normally 21 days).
Committing an act of bankruptcy signifies that you give your creditor authorisation to apply to the Federal Circuit Court for a sequestration order, or in simple terms, an order that will make you lawfully bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice can be served to you in a couple of ways; it can be validly served to you individually, by ordinary post, or hand delivered to your registered address. In certain situations, a bankruptcy notice could be served in a digital form, either by means of email or fax.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of the above sources, a court order may be provided which makes it possible for creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To abide by a bankruptcy notice, you must do one of three things:
- You must pay in full the amount listed in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for example a payment plan over a specific timeframe. The creditor must accept the payment arrangements terms. It’s always suggested that the agreement is made in writing so you have confirmation of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some help. If you have a notice of bankruptcy, just reach out to us here at Bankruptcy Experts Joondalup on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken inside the timeframe detailed 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 however, given that if there are unsatisfactory grounds to make an application then you will be under obligation to pay all the creditors legal fees which only bloats the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a prudent idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you evade committing an act of bankruptcy while the court processes your application. To put it simply, don’t leave it to the eleventh hour.
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 volume 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 prove that the debt claimed on your bankruptcy notice does not exist, you must provide 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 convincing argument to do so. You must have already filed the relevant documents with the court that handed down the order. Furthermore, you must be able to produce evidence to the Federal Circuit Court that illustrates that you have a legitimate case for grounds of appeal.
On top of that, 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 have the capacity to lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. Subsequently, 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 results when the creditor has failed to abide by the requirements of the Act, in which case you may 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 void as these defects can be addressed at the discretion of the court under s 306( 1) of the Act.
Ordinarily, the defect must be considerable or induce confusion over the actions you must take to comply with the bankruptcy notice for you to have the ability to set aside the bankruptcy notice.
There are some fundamental requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be void. The following lists some examples where these necessary requirements have not been met:
- The creditor’s address on the bankruptcy notice must make it reasonably practicable for the debtor to make payment (e.g. PO Boxes may not be appropriate);.
- 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 outlined in an independent 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 outlined in an independent document attached to the notice.
The following describes some circumstances where bankruptcy notice defects have not been considerable enough to make them invalid:
- 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 (presuming payment can be reasonably made to this address).
There are several other legal requirements that should be born 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 in excess of $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be based upon 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 exemption 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 invalidate a bankruptcy notice, except if the debtor disputes the credibility 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 greater than six years old (s 41( 3)( c)).
Under what grounds could I counter-claim, set-off or cross demand?
To be successful using the grounds of counter-claim, set-off or cross demand, you will need to effectively 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 legit and have a reasonable chance of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor secured the judgement on which the bankruptcy notice is based upon. Failure to benefit from the opportunity to counter-claim, including any unfavourable personal circumstances (including lack of evidence or legal advice), will not suffice.
What is an Abuse of process?
An abuse of process manifests if you can substantiate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, instead of a legitimate effort by the creditor to invoke the court’s jurisdiction in regard to bankruptcy. If the former holds true, then you will have the potential to set aside the bankruptcy notice caused by an abuse of process. To succeed using these grounds, you will need to provide evidence of collateral purpose or unnecessary pressure.
What If I think I have grounds to act on one of these items above?
If you feel you have a case for one of the abovementioned reasons to contest 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 find the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either make an application for a final order or an interim order.
Final orders have to outline the ideal outcome you want to receive and the legislative basis which the court can grant this decision. An example of a final order could 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 have to present 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 want to make an application, it must be accompanied by an affidavit which specifies the grounds of your application together 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 very important that your affidavit must adhere to rule 3.02 of the Rules, otherwise your application may be denied and your request for an extension of time to adhere to the bankruptcy notice may not be granted.
Filing your application.
After your documents are finished, 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 fee that will need to be paid, however in various 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 3 days after the documents have been lodged.
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 choose not to take the documents, the person serving them may place the document in the presence of the individual to be served and verbally announce to the individual what the documents consist of.
If you are an organisation, you must personally go to a registered office of the company and give the documents to an individual servicing that business. You don’t need to give the documents to the organisations principal address, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that company’s registered addresses.
If you would like somebody else 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 convinced whether you have grounds to set aside the bankruptcy notice, or you’re unclear whether you should spend the time and money to apply resulting from financial reasons, get in contact with Bankruptcy Experts Joondalup on 1300 795 575 for free advice. Additionally, you can visit our website for additional information: www.bankruptcyexpertsjoondalup.com.au