Enforcement of Judgments – Bankruptcy: What You Need to Know

Enforcement of Judgments – Bankruptcy: What You Need to Know

Once a party has been awarded judgment against a debtor, the next challenge is finding the most effective way to enforce payment of it.

In this article, we focus on enforcement of judgment through bankruptcy proceedings.

Initiating the Process for Bankruptcy

To initiate the process, a bankruptcy notice must be prepared and lodged with AFSA online. Take note that this notice can only be issued if the conditions under Section 41 of the Bankruptcy Act 1966 (Cth) are met. These conditions are:

  • the creditor must have obtained a judgment against the debtor for at least $5,000.00;
  • the judgement must be no more than 6 years old; and
  • the judgement must not be stayed.

Once a bankruptcy notice has been issued by the Official Receiver from AFSA, the creditor has 6 months to effect service on the debtor. Regulation 16.01 of the Bankruptcy Regulations 1996 (Cth) states that service of a document can be through post, personal service, email, or left at the debtor’s last known address.

The debtor has 21 days once service is effected to comply with a bankruptcy notice. For example, if you serve bankruptcy notice by post, it is deemed to be served after four working days.

The debtor can discharge the bankruptcy notice by paying the judgment debt. If the debtor fails to do so a creditor’s petition can be filed.

When a Creditor’s Petition Can Be Filed

An act of bankruptcy must have occurred before a creditor’s petition can be filed. Section 40(1) of Bankruptcy Act 1966 (Cth) sets out the different ways a debtor may commit an act of bankruptcy. For example, if a debtor does not comply with the requirements of a bankruptcy notice, this will be considered an act of bankruptcy.

Within six months of an act of bankruptcy, a creditor’s petition must be lodged with the Court.

The creditor’s petition must be personally served on the debtor. Once it is served, the debtor can discharge the creditor’s petition by paying the judgment debt. If the debtor fails to do so the creditor’s petition will proceed to be heard by the Court.

On the hearing of creditor’s petition the Court may make a sequestration order, which declares the debtor bankrupt.

What Happens After

Upon a sequestration order being made a trustee is appointed to the bankrupt’s estate.

Section 136 of the Bankruptcy Act 1966 (Cth), states all the powers that the trustee can use at their discretion. For example, the trustee can:

  • sell the bankrupt’s property;
  • carry on a business of the bankrupt;
  • bring or defend legal proceedings on behalf of the bankrupt.

The bankrupt party must file a Statement of Affairs within 14 days of being made aware of the sequestration order or a penalty will apply.

A debtor will remain bankrupt for three years and one day from the date of the sequestration order. However, an application can be made by the trustee to extend this period if the bankrupt has not complied with their obligations in the bankruptcy process.

The trustee must then distribute the bankrupt’s assets to the creditors in accordance with their priority to finalise the bankruptcy. The party who brought the creditor’s petition will have first priority to payment of its petitioning creditor’s costs.

We Can Help!

If you are thinking of taking action against a debtor for monies owed, Paladin Legal is here to help you collect your commercial debts. We can assist you throughout the whole process to ensure that your interests are protected.

For more information about our services, contact us at 1300 363 752 or send us an email at [email protected].

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