Enforcing a Judgment through Bankruptcy Proceedings

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A creditor may take recourse to bankruptcy proceedings for recovering a debt, if he has exhausted all other means of debt recovery. It may be an effective way to recover money, as many debtors do not wish to be labelled bankrupt due to the attached stigma.

Bankruptcy is a process where an independent Trustee takes control of the estate of an insolvent person, and distributes the proceeds from the estate to the creditors. Owen Hodge’s team of specialist bankruptcy lawyers in Sydney are on hand to assist with your bankruptcy proceedings.

Bankruptcy Proceedings

A bankruptcy proceeding is initiated after a bankruptcy notice is lodged in the proper form with the Insolvency and Trustee Service of Australia (ITSA). The debtor has the time of 21 days to comply with the notice, after being served with it. The debtor may choose to comply by paying the full amount of the debt or by entering into a repayment arrangement.

The bankruptcy notice can only be issued if there is a final Judgement or Order against the debtor for a debt of at least $5,000, which is not more than 6 years old. Two or more Judgements may be clubbed together but the total value of debt should be at least $5,000.

The burden is on the creditor to prove that the debtor has committed an ‘act of bankruptcy’ as outlined in Section 40 of the Bankruptcy Act, 1966. Commonly, if a debtor fails to comply with the requirements of a bankruptcy notice, it is considered to be an act of bankruptcy. Once such an act is committed, the creditor may commence the bankruptcy proceedings in the Federal Court or the Federal Magistrates Court by obtaining the issue of a Creditor’s Petition by the Court. The Creditor’s Petition should be filed within 6 months of the act of bankruptcy. The Creditor’s Petition is to be served upon the debtor, after that the Court holds an enquiry into whether the debtor can pay back the debts and if it is not satisfied, the Court can declare the debtor to be bankrupt and appoint a Trustee to take control of their estate. The Trustee is entrusted with the responsibility of collecting information about the bankrupt’s assets and liabilities and any creditor, who wishes to claim for the estate of the debtor, must submit a proof of debt with the Trustee. A secured creditor will be paid off before settling the claims of an unsecured creditor. An unsecured creditor will be paid proportionately out of the pool of funds available from the bankrupt debtor’s estate. The costs of obtaining the Order are usually paid out of the bankrupt debtor’s estate as a priority.

Bankruptcy proceedings are a complex affair and in case you wish to enforce a Judgement by these means, please feel free to contact our team of experts at Owen Hodge. Our Sydney-based bankruptcy lawyers will be able to guide you through the labyrinth of complex legal procedure.

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