What to expect when you receive a creditor’s petition

To get a sequestration order at the hearing of the creditor’s petition, the creditor must attend the hearing and have filed:

• an affidavit of service that states how the creditor’s petition was given to you; and
• an affidavit of debt which states that the debt or debts on which the creditor is relying on, are still owing. This affidavit should be made by the creditor no earlier than the day before the hearing if the Court hands down a sequestration order making you bankrupt, the creditor who obtained the order must give a copy of it to the Official Receiver (a position with the Australian Financial Security Authority) within two days of the order being made. The Official Receiver is an organisation involved in the management of your bankruptcy.

A creditor’s petition will expire 12 months after it has been lodged with the Court, however, extensions of time can be given by the Court.

This option is recommended if you do not dispute the debt and you cannot pay the entire debt within a reasonable period of time. The creditor’s legal costs in bringing the creditor’s petition will normally be paid out of your bankrupt estate.

Agreeing to the sequestration order can limit the costs ordered. It is important to understand the consequences of bankruptcy before agreeing to the sequestration order.

Negotiating will give you some time if you decide to sell your property or obtain a loan to pay the debt. This has to be accepted by the creditor and the Court has no power to force a creditor to accept a payment arrangement. In this situation, the court case may be adjourned, i.e. suspended, for a short period of time.

You should speak with a financial counsellor about the likely success of different options.

In this case you or the other party should ask the Court to dismiss the Creditor’s Petition.

If you agree with the creditor to pay the debt off in full, you should make sure that the amount you includes any costs and interest. The creditor may be able to get an order for you to pay their legal costs in bringing the creditor’s petition to the Court.

If you agree with the creditor to pay the debt in full you might also have to pay costs.

You should file a Notice Stating Grounds of Opposition and a supporting affidavit that details why you are opposing the creditor’s petition.

If you have been given a creditor’s petition that states that the act of bankruptcy relied upon is failure to comply with a bankruptcy relied upon is failure to comply with a bankruptcy notice and you:

• Didn’t receive the bankruptcy notice;
• Received the bankruptcy notice but paid the debt; or
• Came to another arrangement with the creditor for payment of the debt (e.g. a payment plan);

Then you may have grounds to oppose the creditor’s petition.

If you never received the bankruptcy notice, you should review the affidavit of service of the bankruptcy notice to determine who they claimed to have served you.

A bankruptcy notice may be validly served personally, by ordinary post or by hand delivery to your address, as last known to the creditor. Remember, the fact that you did not receive the bankruptcy notice is not enough to prove the bankruptcy notice was not in fact delivered.

If you paid the debt in full or came to a payment arrangement with the creditor within the time for compliance with the bankruptcy notice (usually 21 days from the date of service of the notice), you should provide evidence to the Court of any payment or agreement. For that reason, it is always best to put any payment arrangement in writing.

You will need to provide proof that shows the debt is not owed to the creditor. It is recommended that you show that you have taken steps to challenge the judgment, and the earlier this is done, the better. The Court will usually adjourn the bankruptcy proceedings if you show that the debt is currently being disputed in another court.

In addition, if you dispute owing the debt from the judgment upon which the bankruptcy notice is based, in some circumstances, it is possible to ask the Court to “go behind” the judgment. However, generally the Court will only do this where the judgment is a default judgment (that is, a judgment in which you didn’t appear at the court hearing or lodge a defence with the Court). Except in cases of fraud, conspiracy or a miscarriage of justice, the Court will usually refuse to go behind a judgment where it was defended and a decision was on the merits of the case.

To prove solvency, you need to be able to demonstrate to the Court that you are able to pay your debts within a reasonable period of time from your own resources. The Court will look at your financial position as a whole – not just the debt that is the subject of the creditor’s petition. Your assets must be available in cash to pay your debts within a relatively short period of time, otherwise the Court may not consider you to be solvent even if you have valuable assets like a house.

If you do not dispute the debt owed to the creditor, the Court will usually assume that the reason you have not paid it is because you cannot afford to. Therefore, proving that you are solvent is usually something that you would only do if you had some other reason for not paying the debt, such as because you dispute it.

This ground is concerned with exceptional circumstances that outweigh the public interest in making a sequestration order against a person who is insolvent. The categories that would satisfy this ground are not clear and it would be very rare to successfully oppose the making of a sequestration order on this ground.