A guide to Bankruptcy Notices: What to do if you receive one?

Being served with a Bankruptcy notice is one of the most stressful things that can happen to an individual. Continue reading to find out exactly what to do if you receive one.

What is a bankruptcy notice?

A bankruptcy notice is the first step in the process of bankruptcy. A bankruptcy notice will outline details of the alleged debt and that it must be repaid within 21 days. Receiving a bankruptcy notice indicates that a creditor is seeking to recover their debt by bringing an application to the Court to have you declared bankrupt. This is known as a sequestration order and is a common pathway for creditors to recover outstanding debts.

What is bankruptcy?

To properly understand a bankruptcy notice it is also important to understand the bankruptcy process generally in Australia. A person can be declared bankrupt in two ways: a debtor’s petition (initiated by the debtor) or a creditor’s petition (initiated by the creditor).

What to do if you receive one?

1. Note the Details

The first thing you should do is carefully read the notice. You should take note of the day that you were served with the Notice and diarise the due date for compliance (21 days after service). You should also carefully review the notice and consider the alleged debt that the creditor is relying on. Consider whether you dispute or agree with the debt or the calculation of the debt and consider whether it has already been paid or part paid.

2. Contact the Creditor

You may be able to contact the creditor or their lawyer to understand their position and/or negotiate an agreement.

3. Seek advice

If you dispute the debt or have concerns about the bankruptcy notice not being valid, you should seek legal advice immediately. Bankruptcy is also a significant financial decision which may have significant effects on your future. If you are unable to pay the notice, you should seek advice from an experienced accountant or financial planner about your options to best protect your assets. 

What are your options?

(a)   Pay the Notice

If you have verified the legitimacy of the debt and the notice and you are in a position to pay the debt, you should do so within 21 days. By discharging the debt in full, no further bankruptcy actions can be brought against you in relation to that debt. 

(b)   Negotiate a resolution

If you are in financial difficulty or dispute the debt or part of the debt, you may be able to negotiate a resolution with the creditor to repay the debt in instalments which are suitable to your situation. It is recommended that any agreement reached is recorded in writing, preferably in a deed of settlement, to ensure that your rights are protected.

(c)   Apply to set aside the Notice

There are a number of criteria which must be met for a bankruptcy notice to be valid under the Bankruptcy Act 1966 (Cth). If they are not met, you may be able to bring an application in the Federal Court to set aside the bankruptcy notice and/or oppose the creditor’s application for a sequestration order. This may occur if, for example, there is an irregularity in the form of the notice, the debt is not a valid debt, or there is an irregularity in service. This application is complex, and it is recommended that you seek legal advice.

(d)   Debtor’s petition

If you are unable to repay the debt or reach an agreement with the creditor, you may consider bringing a debtor’s petition to initiate the bankruptcy process. It is essential that you seek financial advice prior to making this important decision. Please do not hesitate to contact us for a referral to a financial advisor who specialises in this area.

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Conculsion

The team at Collett Law are here to navigate you through this process. If you have been served with a bankruptcy notice or require further advice regarding bankruptcy notices, contact Collett Law today to discuss your particular circumstances and which option may be best for you.