Bankrupting a Debtor ....

To bankrupt a debtor, there are a number of pre-requisites that must be met.

First you need to have a debt due to you (as the creditor) of more than $2,000.00 by an individual debtor (ie a person, not a company or incorporated entity or association).

Secondly, there should be an court order for the payment of that money; such as a Judgment. Thirdly, the order must specify the requirement for the payment of the money.

The Judgment or Order for the payment of money cannot be more than 12 years old. If it is, it has probably become statute barred; that is to say irrecoverable as a matter of law as a result of the passing of time.

If you satisfy those requirements then you can more than likely bring proceedings to bankrupt the debtor.

Lastly, you need to have an act of Bankruptcy upon which you can rely. So the first stage of the article explains how to start the bankruptcy proceedings and found the act of bankruptcy upon which you rely to obtain a sequestration order, which is the final step in bankrupting someone.

This article assumes you have a valid Judgment of a court for (or in excess of) $2,000.00.

The First Step

The first step in bankrupting a person is usually issuing a Bankruptcy Notice; there are other means by which a creditor can commence Bankruptcy proceedings, but for the purposes of this article, we will only refer to a Bankruptcy Notice issued under s41 of the Bankruptcy Act.

A Bankruptcy Notice is issued pursuant to the provisions of the Bankruptcy Act 1966 in a very particular form, which if not strictly adhered to can render the Bankruptcy Notice useless and perhaps even expose the person or company which issued  it, to a substantial adverse costs order.

A Bankruptcy Notice is issued in Form 1. The form changes every now and then, so do not rely upon the form I provide with this article without checking its currency with the ITSA (Insolvency Service Australia) web site.

Once the form has been properly filled in, it needs to be filed with ITSA. There is a filing fee (at the time of writing $400.00). The document needs to be filed in triplicate. At the time it is filed, two copies will be given back, one is for service, and the other for an Affidavit of Service.

The people at ITSA, are most helpful and provide well written guidelines on how to properly fill in a Bankruptcy Notice.

If you have a solicitor do the work of completing the Bankruptcy Notice (which I recommend you do), you can expect to incur a cost of about $400 plus GST.

The Second Step - Service

The Bankruptcy Notice must be served within 6 months of being filed, failing which it expires.

Service of the Bankruptcy Notice is to be effected personally; that is delivered to the respondent in person. It cannot be posted, it cannot be left with someone or somewhere (such as in a letterbox).

At the time of service, the person serving the Bankruptcy Notice must identify the person being served as the respondent by asking certain questions to ensure that they are the correct person. For instance "Are you ... the person referred to as the debtor in this Bankruptcy Notice?"

An Affidavit of Service must be completed and properly attested by the person who served the Bankruptcy Notice. The usual form for the service of an Affidavit of Service is to be found here.

The Third Step - Time for Compliance

After service has been effected, the debtor has 21 days to "pay or make an arrangement for the settlement of" the debt to the creditors satisfaction.

If the debtor pays the amount identified in the Bankruptcy Notice as the amount claimed, then that is the end of the matter. There is no entitlement to costs (such as filing fees etc). Any amount paid to you on account of costs, could be, in the writers opinion, recovered as an over payment by the debtor.

If an arrangement for the payment of the debt is proposed, and the debt would be paid within  a period of 6 months of the date of service, then the arrangement proposed should be given some consideration, provided that adequate security and precautions are taken to protect the money paid.

The Final Step

If the Bankruptcy Notice has been served, and the time for compliance has passed, then in all the circumstances the debtor has committed an act of Bankruptcy. It is this act of Bankruptcy that you rely upon to complete the last step in the process of Bankrupting the debtor.

Within 3 months of the expiration for compliance with the Bankruptcy Notice, a Creditors Petition can be presented. It cannot be presented outside the 3 month period.

To learn about presenting a Creditors Petition see Part 2 of this article.