The difference between bankruptcy and insolvency is that bankruptcy takes place with the individual whereas insolvency applies to a corporation.
There isn’t necessarily a threshold in order for someone to be part of a bankruptcy proceeding or subject to bankruptcy proceedings. However, there is a threshold with respect to the amount of debt that is required in order to bankrupt someone.
The debt threshold
In order to bankrupt a person, that person must be owing to the Creditor (that is, a person to whom the debt is owed) a debt in the minimum amount of $5,000. This amount may be inclusive to the amount of interest that that person is owing.
The debt must be pursuant to a judgement. In other words, a person cannot bankrupt another person on the mere existence of unpaid and overdue debt without obtaining in the first instance a judgement for that debt. There are various other options where a bankruptcy may take place pursuant to a debt, however this article will focus on the debt established pursuant to a judgment of a Court.
If the debt requirement has been met, the next step is to proceed by issuing a bankruptcy notice.
A bankruptcy notice is a Notice which sets out the intention of the Creditor to bankrupt the person who owes the debt.
The bankruptcy notice must be made pursuant to the standard form that is issued by the Federal Court of Australia or the Federal Circuit Court of Australia
In order to comply with the requirements of a bankruptcy notice, the bankruptcy notice must include the debt amount and it must provide the debtor with a minimum of twenty-one (21) days in order for the debtor to comply with the bankruptcy notice and either make arrangements for payment or make other arrangements.
The bankruptcy notice must be served on the debtor in person. The reason being, the person who served the document must provide a written confirmation in the form of an affidavit showing that the bankruptcy notice has indeed been served and delivered to the debtor.
If the debtor cannot or has not complied with the twenty-one (21) days period, then the debtor has committed an act of bankruptcy. The creditor may proceed with filing the next step of a bankruptcy. The next step for bankruptcy is to file with the Federal Court of Australia or the Federal Circuit Court of Australia what is called a creditors petition.
The Creditor’s Petition
The Creditor’s Petition is a document that is filed with the Federal Court of Australia or the Federal Circuit Court of Australia. The Creditor’s Petition requests an order of sequestration from the Court. An order of sequestration is the final stage of bankruptcy.
In order to proceed with the Creditor’s Petition, there are various documents which must be filed with the Court. This includes an affidavit showing the amount of debt that is owing at the time of the first hearing of the Creditor’s Petition. There are additional requirements which must be complied with at or before the first hearing.
Nonetheless, in order for the Court to issue the sequestration order, the Court must be satisfied that the debtor has not responded to the bankruptcy notice, has been notified properly of the bankruptcy proceedings, and the bankruptcy is the appropriate solution in this circumstance.
Once a bankruptcy order, that is the sequestration order, has been issued by the court, the Court will appoint a trustee who will be managing the affairs and the assets of the bankrupt person. The Creditor may apply to appoint its nominated trustee who will be managing the assets of the bankrupt person.
Due to the fact that bankruptcy proceedings may cause the Creditor to incur costs in order to enforce its judgment or obtain payment for its debt, the court will normally look at rewarding the Creditor with a cost order. The Court costs order will allow the creditor to cover some, and in some examples, most of the Creditor’s costs that has been incurred in order to obtain and pursue a bankruptcy proceeding. That cost order will award the Creditor with an amount of money to cover the costs. This amount will be added to the total debt owed by the Debtor, in addition to the original debt.
How can we help you?
If you are pursuing a debt, or wish to consider the option of bankruptcy, or are subject to a bankruptcy proceeding, contact our office for a consultation.