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Bankruptcy – the importance of seeking timely advice

Posted on April 29, 2022
Rebecca Cameron

I have received a bankruptcy notice, what is it?

A bankruptcy notice is where a person or organisation (the creditor), is alleging by way of demand, that you (the debtor) owes them money. Effectively, the creditor is seeking to declare you bankrupt if you do not repay the debt or comply with the notice.

A bankruptcy notice is usually issued where a creditor has obtained a court judgement or where the judgement made against a debtor is $10,000 or more.

A bankruptcy notice gives you 21 days to comply from the date you were served the notice. Accordingly, the notice requires your immediate attention and action.

What are my options?

A bankruptcy notice stipulates time requirements which will be enforced strictly by the courts. Therefore, to ensure you have ample time to consider your options and can take informed action, you should seek legal advice immediately.

Generally, you have three options to consider when responding to a bankruptcy notice:

  1. Pay the amount in the bankruptcy notice in full within 21 days; or
  2. To arrange with the creditor an alternative agreement to settle the debt within 21 days, such as a payment plan; or
  3. To make an application to the court challenging the bankruptcy notice within 21 days.

Once 21 days has lapsed, you will have no further recourse to dispute the bankruptcy notice.

Importance of seeking timely legal advice

Legal repercussions

If you choose not to take any action in response to the notice, you may be considered at law to have committed an “act of bankruptcy”. This includes a failure to comply with the notice within 21 days or the failure to apply to the court to have the bankruptcy notice set side by the court within 21 days of receiving it.

If you have committed an act of bankruptcy, you give the creditor grounds to apply for a court order declaring you be made bankrupt (sequestration order).

The legal and personal repercussions of bankruptcy are severe. Once declared bankrupt, you give up your rights to control your own finances. Instead, a trustee in bankruptcy will step into your shoes and assume control. This may involve the trustee selling your assets to satisfy outstanding debts.

Other consequences of bankruptcy include:

  • If you retain employment and earn over a certain amount, you may need to make compulsory payments to your trustee;
  • You may face possible restrictions around running a business, especially as a sole-trader and you will be precluded from being a director of a company;
  • Your ability to travel overseas will be limited and you will require written consent of the trustee to travel overseas;
  • Your ability to obtain future credit may be disrupted.

Importantly, the court filing fees associated with responding to a bankruptcy notice are expensive. That is why we encourage clients to work with us at the earliest stage possible to try and resolve their dispute without having to a file a court application. By allowing maximum time to respond, you give yourself the best prospects of reaching an alternative settlement agreement with your creditor, saving you on both time and costs.  

Keeping in mind that your 21 days to respond to a bankruptcy notice starts running from the date of service, it is imperative you seek timely legal advice.