Whether you owe, or are owed money, bankruptcy may effect you. Prime Lawyers has an experienced insolvency team who can assist both creditors and debtors with advice and legal representation in all aspects of personal bankruptcy. If you owe money, you may be considering bankruptcy to ‘finalise your debts’. If you are owed money, you may be considering commencing bankruptcy proceedings against someone to recover your money.

Bankrupting someone who owes you money

An entity (whether an individual or a corporation) is insolvent if it cannot pay its debts as and when they fall due. In relation to an individual, a creditor may rely on an act of bankruptcy (often being a person’s non-compliance with a Bankruptcy Notice issued in accordance with the Bankruptcy Act) to apply to the court for a sequestration (bankruptcy) order to have a trustee appointed to hold the estate of the debtor. In simple terms, if a debtor does not comply with a bankruptcy notice, a creditor can apply to bankrupt the debtor.

Advantages for a creditor by proceeding to bankrupt a debtor

1. Finalisation all debts.

2. Because of the serious consequences of bankruptcy, when facing a Bankruptcy Notice/Bankruptcy proceedings debtors often pay their debt to avoid bankruptcy.

3. A trustee investigates the individual’s affairs to find out whether the individual has deliberately disposed of assets to avoid creditors receiving the benefit of those assets. If the debtor has done so, in certain circumstances the trustee may “claw back” assets for the benefit of creditors.

Disadvantages for a creditor by proceeding to bankrupt a debtor

1.The creditor who initiates the bankruptcy has no special priority over other creditors to get their debt paid. Therefore if the debtor has insufficient funds to meet all their debts, the creditor might not get all (or any) of their debt paid back even though they instigated the bankruptcy.

Entering bankruptcy voluntarily

Depending on the particular circumstances, an individual may voluntarily enter bankruptcy. Please contact us for further information regarding this. It may be the case that you need to contact the ITSA to assist you in the bankruptcy process.

I have received a bankruptcy notice, what do I do?

If you are subject to personal insolvency action by creditors, it is essential that you take prompt action.

If you are served with a Bankruptcy Notice you have only 21 days within which to either pay the debt or, if there is a dispute as to the debt or some other reason why you should not pay, apply to the court to have the Bankruptcy Notice set aside. If you do not do this, you will be deemed to have committed an act of bankruptcy.

If a creditor commences bankruptcy proceedings against you, you should seek legal advice urgently, to determine the grounds of your opposition and to prepare the appropriate court documents.

Please feel free to contact us on (02) 9521 2222 if you have any questions about bankruptcy, whether you are a creditor or debtor. You can also send us your enquiry online now and we will contact you shortly.

Author Bio: Danny Saad has many years experience in Debt Recovery Law working with the experienced Sydney Lawyers at Prime Lawyers.

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