By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group
Is having a judgment against a personal debtor enough to serve a bankruptcy notice and bankrupt the debtor? Can you make a debtor bankrupt by serving a bankruptcy notice? What else do you need to know to bankrupt a personal debtor?
A creditor serving a bankruptcy notice is the first step to potentially making a debtor bankrupt. The bankruptcy notice must be based on a judgment against a personal debtor in an Australia court and be less than 6 years old.
Can you bankrupt a debtor for a $5,000 judgment? Unfortunately for creditors, the debtor must owe $10,000 or more. This new permanent threshold may cause some confusion to creditors and debtors coming out of the COVID-19 pandemic. The debtor threshold had been $5,000 from 2010. However it was temporarily increased to $20,000 during the COVID-19 pandemic. This temporary threshold has since expired. The debtor threshold for bankruptcy notices has now increased to $10,000 from 1 January 2021.
It is important to note that the threshold does not include a debtor’s liability to accumulated interest. The principal debt itself must be $10,000 or more in order to apply for a bankruptcy notice to be issued against a debtor. However, a bankruptcy notice can be based upon multiple judgments against a debtor. So, if one judgment against a debtor is less than the debtor threshold, another judgment against the same debtor can be included, to potentially make a debtor bankrupt.
Once a debtor has been successfully served with a bankruptcy notice, can you just simply go to court and make the debtor bankrupt? The short answer is – it depends. Once a bankruptcy notice has been served, a judgment debtor has 21 days to either:
- Pay the amount set out in the bankruptcy notice;
- Make arrangements to settle the amount owing by the debtor, to the judgment creditor’s satisfaction; or
- Alternatively, apply to the court to set aside the bankruptcy notice.
The debtor’s period to comply with a bankruptcy notice has reverted back to 21 days. This period had been temporarily increased to 6 months during the COVID-19 pandemic – however this temporary extension for compliance by a debtor has since expired. The debtor now only has 21 days to take one of the above 3 options.
Should the judgment debtor fail to take any of the above options within the 21 day period, the judgment debtor will have committed an ‘act of bankruptcy.’ After this, the creditor will be at liberty to then commence bankruptcy proceedings to bankrupt the debtor.
Commencing bankruptcy proceedings is not as simple as getting a judgment paid the day after a personal debtor is made bankrupt. There are plenty of factors to be considered by a creditor before making a debtor bankrupt. The avenue of commencing bankruptcy proceedings should not be taken lightly, but can be an effectual tool to deal with a personal debtor who continues to refuse to pay a debt.
There are specific and strict guidelines and requirements for bankruptcy proceedings, including claims against debtors and making a debtor bankrupt. Contact Matthews Folbigg Lawyers for specialist advice and assistance with recovering amounts owing by debtors, and running your bankruptcy proceedings.
Matthews Folbigg Lawyers has a specialist team dedicated to Insolvency, Restructuring and Debt Recovery.
If you would like more information or advice in relation to Insolvency, Restructuring or Debt Recovery practice and procedure, please contact Stephen Mullette or Jeffrey Brown on (02) 9806 7459 or (02) 9806 7446, or email stephenm@matthewsfolbigg.com.au or jeffreyb@matthewsfolbigg.com.au.
