The Law Handbook 2024

380 Section 5: Managing your money before the debtor’s petition is accepted (s 57A Bankruptcy Act) – this extends the bankruptcy by one day. The Official Receiver (AFSA) generally accepts the petition on the day it is received or the day after. AFSA usually processes a debtor’s petition within 24–48 hours. What happens after the documents are sent to AFSA? Once the debtor is bankrupt, the trustee might ask the debtor to come in for an interview. However, consumer bankrupts with no assets are not usually required to attend a trustee’s office for an interview. The trustee might also sometimes ask for copies of contracts and documents relating to the debts, and might require the bankrupt to hand over their passport. Again, this is unlikely to happen to a consumer bankrupt with no assets. Declaration of intention to present a debtor’s petition: temporary debt protection The Bankruptcy Act provides for temporary debt protection under the name of a ‘declaration of intention to present debtor’s petition’ in Part IV Div 2A starting at s 54A. The Act provides a ‘stay period’ of 21 days so that debtors and their creditors can negotiate a payment agreement. (This was extended to six months during the COVID-19 pandemic.) In the stay period, unsecured creditors cannot take enforcement action to recover money owing, cannot garnish the wages of the debtor with a garnishee order and cannot have the sheriff or bailiff seize a debtor’s goods. In this time, the debtor can seek advice from a financial counsellor, negotiate a payment plan with creditors and consider any of the formal insolvency options available. The presentation of a declaration of intention to present a debtor’s petition is an ‘act of bankruptcy’ upon which a creditor can petition for bankruptcy if no agreement is reached (s 40(1)(da)). The 21-day stay will not stop: • a secured creditor repossessing secured property; • a creditor’s petition being filed; or • a sequestration order by a court, which makes a person bankrupt. In many cases, the presentation of a declaration of intention to present a debtor’s petition may harm a debtor’s position. Therefore, it is recommended that advice be obtained before presenting such a declaration and careful thought be given to the debtor’s other options. Creditor’s petition: Involuntary bankruptcy If a debtor owes $10 000 or more to a creditor (the bankruptcy threshold or ‘statutory minimum’ defined in s 5 of the Bankruptcy Act; prescribed in regulation 10A of the Bankruptcy Regulations), the creditor can enforce the debt by taking bankruptcy proceedings against the debtor (s 44). To do this, the creditor must file a creditor’s petition in either the Federal Court or the Federal Circuit Court. Act of bankruptcy At the hearing of the creditor’s petition, the creditor must establish that the debtor committed an act of bankruptcy within the six months before the petition was filed in court. An act of bankruptcy is an action of a debtor that shows an inability to pay their creditors. Section 40 of the Bankruptcy Act lists over 30 actions that are considered to be acts of bankruptcy. Failure to comply with a bankruptcy notice (s 40(1)(g)) is the main act of bankruptcy used by creditors. Bankruptcy notices A creditor who has obtained a court order against a debtor can apply to the Official Receiver (AFSA) for a bankruptcy notice. Part 4 Division 1 of the Bankruptcy Regulations prescribe the form of the bankruptcy notice. Before a bankruptcy notice can be applied for, the final order(s) must be for at least $10 000 and be less than six years old (s 41(3)(c)(i) Bankruptcy Act). The bankruptcy notice is attached to a copy of the court order and demands payment of the debt within 21 days of service. If the debtor does not pay within the time period, they will have committed an act of bankruptcy and the creditor will then be able to file a creditor’s petition. Extending time for compliance If a bankruptcy notice has been served on a debtor, the debtor can apply to the Federal Court or the Federal Circuit Court to extend the time for compliance with the notice.