September 19, 20170

Everything you must know about Bankruptcy Notices

Posted by:Charles Bosse onSeptember 19, 2017

If you have acquired a bankruptcy notice or court order you must respond rather quickly to prevent future grief. Owing someone else money known here as a creditor, may be any individual or company to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will approach the Australian Financial Security Authority (AFSA) who will consequently deliver a bankruptcy notice demanding payment of that money.

Typically, there is a threshold to the volume of money owing to creditors before they can talk to the AFSA, and the minimum amount is $5,000. Once the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.

It’s very important that you take timely 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:

  • Abide by the bankruptcy notice in less than 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 pronounced on the notice (normally 21 days).

Committing an act of bankruptcy signifies that you give your creditor the permission to apply to the Federal Circuit Court for a sequestration order, or in other words, 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 several ways; it can be validly served to you in person, by normal post, or hand delivered to your registered address. In specific circumstances, a bankruptcy notice could be served digitally, either by means of email or fax.

If it’s not achievable for a creditor to serve a bankruptcy notice using any of these methods, a court order may be acquired which enables creditors to serve the bankruptcy notice in a separate way.

I have a bankruptcy notice, now what?

To adhere to a bankruptcy notice, you must do one of three things:

  1. You must pay in full the amount stated in the bankruptcy notice; or
  2. Negotiate an agreement with the creditor, for example a payment plan over a defined timeframe. The creditor must agree to the payment arrangements T&C’s. It’s always recommended that the agreement is made in writing so you have confirmation of the agreement.
  3. Get some bankruptcy advice. At this point, you must not delay and get some guidance. If you have a notice of bankruptcy, just phone us here at Fresh Start Solutions Canberra on 1300 818 575 for a Free Consultation.

It is crucial to note that all of these actions must be taken inside the timeframe cited in the bankruptcy notice (usually 21 days from the date of the notice).

Can I get my Bankruptcy Set Aside?

If warranted, you can apply to the court to have the bankruptcy notice cancelled or set aside. This should never be taken lightly though, since if there are inadequate grounds to make an application then you will be liable to pay all the creditors legal fees which only increases the debt you owe to them.

If you do apply for your bankruptcy notice to be set aside, it’s always a good idea to request that the court prolongs the timeframe for compliance with the bankruptcy notice, so you keep away from committing an act of bankruptcy while the court processes your application. In other words, don’t leave it to the last minute.

To have your bankruptcy notice set aside, one of the following conditions must apply:

  1. The debt claimed on the bankruptcy notice does not exist;
  2. There is a defect in the bankruptcy notice;
  3. You have grounds for a counter-claim, cross demand, or set-off, equal to or exceeding the sum of debt issued in the bankruptcy notice; or
  4. 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 will need to present evidence that:

  • You have in fact paid the creditor the amount owing under the order or judgement; or
  • You have appealed the order by commencing 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 submitted the relevant documents with the court that handed down the order. Further, you must have the capacity to provide evidence to the Federal Circuit Court that illustrates that you have an authentic case for grounds of appeal.

Furthermore, if you do not initiate the process of setting aside the judgement or order before filing your application to set aside the bankruptcy notice, the Federal Circuit Court will not have the capacity to increase 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 happens when the creditor has failed to satisfy the requirements of the Act, in which case you might 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 repaired at the discretion of the court under s 306( 1) of the Act.

In general, the defect must be considerable or result in confusion over the actions you must take to comply with the bankruptcy notice for you to have the capability to set aside the bankruptcy notice.

There are some vital requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be invalid. The following lists some examples where these critical requirements have not been met:

  • The creditor’s address on the bankruptcy notice has to make it reasonably practicable for the debtor to make payment (e.g. PO Boxes may not be suitable);.
  • 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 itemised 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 itemised in an independent document attached to the notice.

The following specifies some circumstances where bankruptcy notice defects have not been serious 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 (assuming payment can be reasonably made to this address).
  • There are several other legal requirements that should be considered. 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 on a final judgement or order that is presently 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 six months of its issue. The only exception is if the Official Receiver (reg 4.02 A) has lengthened 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 undermine a bankruptcy notice, unless the debtor challenges the legitimacy of the notice in less than the timeframe for compliance (s 41( 5)); and.
  • The order or judgment on which the bankruptcy notice is based can not be more than 6 years old (s 41( 3)( c)).

Under what grounds could I counter-claim, set-off or cross demand?

To succeed using the grounds of counter-claim, set-off or cross demand, you will have to properly demonstrate to the court the following two items:

  1. The counter-claim, set-off or cross demand is equal to or greater than the total amount claimed by the creditor in the bankruptcy notice. You must also satisfy the court that these claims are certified and have a reasonable chance of succeeding; and.
  2. The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor acquired the judgement on which the bankruptcy notice is based upon. Failure to make use of the opportunity to counter-claim, including any adversarial personal circumstances (for instance lack of evidence or legal advice), will not be adequate.

What is an Abuse of process?

An abuse of process takes place if you can validate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, as opposed to a genuine effort by the creditor to invoke the court’s jurisdiction in connection with insolvency. If the former holds true, then you will have the chance to set aside the bankruptcy notice as a result of an abuse of process. To be successful using these grounds, you will need to produce evidence of collateral purpose or unjustifiable pressure.

What If I find that I have grounds to act on one of these items above?

If you find that you have a case for one of the previously mentioned reasons to challenge your bankruptcy, you will need to get the following documents prepared, filed, and served in order to apply for your bankruptcy notice to be set aside:.

  1. Application (Form B2); and.
  2. Affidavit.

Application.

You can get the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either request a final order or an interim order.

Final orders must outline the ideal outcome you aspire 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.

On the other hand, an interim order should outline 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.”.

Affidavit.

If you wish to make an application, it must be accompanied by an affidavit which outlines the grounds of your application along 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 crucial that your affidavit must comply with rule 3.02 of the Rules, otherwise your application may be refused and your request for an extension of time to fulfill the bankruptcy notice may not be granted.

Filing your application.

As soon as 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 some circumstances you can apply for a waiver of this fee.

Serving your documents.

Once you’ve lodged 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 individual serving them may place the document in the presence of the individual to be served and verbally instruct the individual what the documents entail.

If you are a business, you must personally go to a registered office of the business and deliver the documents to an individual servicing that organisation. You don’t have to hand the documents to the company’s principal address, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.

If you want another person to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a fee.

Financial Advice.

If you’re not confident whether you have grounds to set aside the bankruptcy notice, or you’re unclear whether you should spend the time and money to apply as a result of financial reasons, speak to Fresh Start Solutions Canberra on 1300 818 575 for free advice. Alternatively, you can visit our website for more information: http://freshstartsolutions.com.au/bankruptcy-canberra

 

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