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Commencing Bankruptcy Proceedings (NSW)

Bankruptcy proceedings are a way of enforcing payment of debts that involves the debtor being made bankrupt. Bankruptcy can affect a person’s freedom to travel overseas, their employment and any businesses they may own. Bankruptcy can also affect a person’s ability to obtain credit and their overall credit rating. Credit reporting agencies keep records of bankruptcy for five years from the date of bankruptcy, or two years from when bankruptcy ends, depending on which date is later. This article outlines the processes for commencing bankruptcy proceedings in New South Wales. 

National Personal Insolvency Index

When a person is made bankrupt, their name will appear on the National Personal Insolvency Index (NPII). The NPII shows the following information: 

  • Name, date of birth, residential address and the occupation disclosed on the application
  • Any previous names and aliases
  • The type of proceeding, its start date and the AFSA administration number
  • The trustee’s or administrator’s name and contact details
  • The current status of the proceeding 

What happens after Commencing Bankruptcy Proceedings?

Once a person is declared bankrupt, their bankruptcy will be managed by a trustee. The trustee works with the bankrupt and their creditors to achieve a fair and reasonable outcome for all parties. During bankruptcy, a debtor has an obligation to provide certain information to their trustee, including changes to their circumstances. This may involve supplying bank statements and other documents that the trustee requests.

When a person applies for voluntary bankruptcy, they can nominate a registered trustee of their choice. If they don’t nominate a trustee, the Australian Financial Security Authority (AFSA) will normally be appointed. In some cases, the Official Trustee may transfer the administration of their estate to a registered trustee. 

During the period of a person’s bankruptcy, their trustee will take control of any property they own. The trustee will have control over that property and can sell it to help pay their debts. This can have serious implications especially in circumstances where property is owned jointly with another person. 

In New South Wales, bankruptcy proceedings can be commenced against any person who owes a debt of $5,000 or more.

Who can be subject to bankruptcy proceedings?

Any natural person can be subjected to bankruptcy proceedings. Companies cannot be bankrupt. The only preclusion to commencing bankruptcy proceedings is where the individual is already bankrupt and has not yet been discharged from bankruptcy.

What must happen before commencing bankruptcy proceedings

Before bankruptcy proceedings can commence, a judgment for a debt must be obtained in a court against the debtor by the creditor. Upon receipt of a judgment, the creditor can draft and file a Bankruptcy Notice against the judgment debtor. This is filed online with the Australian Financial Security Authority after creating an account.

Once a Bankruptcy Notice is filed, personal service must be effected on the judgment debtor. This must be done within six months of the date of filing. If a judgment debtor cannot be served within this timeframe, the Bankruptcy Notice will lapse and have to be refiled. Once the Bankruptcy Notice has been served, the judgment debtor has 21 days to pay the debt in its entirety or make arrangements for it to be paid. If this does not occur within 21 days, an act of bankruptcy has occurred.

All new bankruptcy applications should be initiated using the forms approved under the Bankruptcy Rules. Both the Bankruptcy Rules and the general court rules apply to bankruptcy proceedings. All applications can be filed with the Registry. Rule 1.07(5) and Form B1 of the Bankruptcy Rules and Federal Court Rules 2011 sets out the formal requirements for documents filed in bankruptcy proceedings. Rules 29.01 to 29.03 of the Federal Court Rules 2011 set out the formal requirements for Affidavits filed in the FCA but these must be modified to include the heading in approved form B1 prescribed under rule 1.07(5). After these forms are filed, Federal Court proceedings formally commence.

Applications for Bankruptcy Notices are governed by Section 4.01 of the Bankruptcy Regulations 1996, which requires that applications be lodged in the approved form along with a copy of the judgment order, a certificate of the judgment or order or a copy of the entry of the judgment that is by the court or signed by a court officer.

All documents in bankruptcy matters can be filed online by eLodging the documents with the Registry using the eLodgement facility on the court’s website

An application must then be filed for a sequestration order. These applications are made by presenting a Creditor’s Petition using Form B6, supported by affidavits in compliance with the Bankruptcy Rules. Once this has been filed, the Applicant can expect to receive a first hearing date within two to six weeks, depending on the nature of the application. 

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.

Michelle Makela

This article was written by Michelle Makela

Michelle has over 15 years experience in the legal industry, working across commercial litigation, criminal law, family law and estate planning.  Michelle has been involved in all practice areas of the firm and in her personal practice has had experience in litigation at all levels (State and Federal Industrial Tribunals, the Supreme Court, Court of Appeal, the Federal Court, Federal...

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