What is a Bankruptcy Notice – What Should You Do if You Receive One?

What is a Bankruptcy Notice – What Should You Do if You Receive One?

A bankruptcy notice is essentially a demand for the payment of money by a creditor (a person who is owed money) from a debtor (a person who owes money). They are generally served to enforce a court judgement or judgements worth $5,000 or more against a debtor.

What Do I Do if I Have Received a Bankruptcy Notice?

If you have received a bankruptcy notice, you need to either comply or apply to have it set aside. Whilst you would normally have 21 days in which to do one or the other, this has been extended to 6 months while Covid-19 is an issue. You can either pay the amount owed in full or reach an agreement with the creditor (preferably in writing) such as to pay the amount owed in instalments.

However, if you want to apply to the court to have the bankruptcy notice set aside, you must also act within the time stated in the notice. If you fail to act in this time, you will commit an ‘act of bankruptcy’. It will allow the creditor to lodge a creditor’s petition to apply for a sequestration order. This in turn will make you bankrupt.

Applying to set aside a bankruptcy notice

Alternatively, you can apply to the Federal Court or Federal Circuit Court to set aside the bankruptcy notice. You can also apply to extend the time for compliance with the notice. These options are available if you can argue one of the following.

  • There is a defect in the bankruptcy notice. For example, the name on the notice is wrong, there was no time limit for compliance with the notice, the judgement or order was worth less than $5,000 or the notice was not served properly.
  • The debt does not exist, such as if you have already paid for it.
  • You have a claim against the creditor, equal to or greater than the amount claimed in the bankruptcy notice.
  • The bankruptcy notice is an abuse of process. This means that it has an improper purpose or is providing unfair pressure on the debtor to pay the debt.

To set aside a notice you need to fill out and file Application Form B2, an affidavit and the bankruptcy notice at the Federal Court or Federal Circuit Court. You will need to pay a filing fee. Then you need to serve a copy of the application and supporting affidavit that have been stamped by the court on each respondent to the application. This must happen personally within 3 business days after the application is filed.

Bankruptcy notices can be complex to deal with, and the Bankruptcy Act 1966 is a complex legislation, thus it is suggested to seek legal advice before acting.

To find out more, please do not hesitate to contact us.