I want my money!

Can I bankrupt a debtor to get my money back?  One of the most tiring processes of running a business is chasing your money.  If all other avenues have been ignored in the chase to collect your debt, then you may have little option but to declare an individual (not a company) with a debt over $5,000 – bankrupt. But is it really worth it? Is there any other option?
 
Is Bankruptcy the only course of action?  It isn't always in the creditor’s best interests to bankrupt a debtor, and you should consider the following factors before doing so: 

  • Are you prepared to lose the client or friend over the debt?
  • What is your debtor’s true financial situation?
  • Do they have funds and assets available to distribute? If your debtor has little or no funds or assets, there may be no benefit to making them bankrupt – you can’t get blood out of a stone.
  • Are they serial offenders with other businesses?
  • What other creditors does your debtor have i.e. bank loans etc? Secured creditors like the bank, hold a charge over the debtor’s assets and therefore have priority in receiving repayments before unsecured creditors.  
  • What will it cost you in making your debtor bankrupt? You should consider court filing fees, service fees, and solicitor’s fees. In some instances, these costs may exceed the debt you are trying to recover. 
  • Have you considered engaging a debt collection agency to chase up the debt?
  • Have you considered negotiating a payment plan with your debtor? This may avoid all the legal costs involved and help your debtor with their cashflow.
  • Have you exhausted all other enforcement options? Making an application for bankruptcy is not the only way to enforce a judgment debt.

The Bankruptcy Process

Having your debtor made bankrupt involves many steps in the process. If you are successful in having your debtor made bankrupt, there is no guarantee that you will even receive any payment.  

Bankruptcy Notice

You must apply to the Australian Financial Security Authority (AFSA) for the issue of a bankruptcy notice. Before lodging, the application, conduct a search through the National Personal Insolvency Index to ascertain whether the debtor has already been made bankrupt. This is all part of our service to ease the stress for you. 

The application needs to include specific information including your details, the debtor’s details, information about the judgment debt, any interest calculation and your address for service. You can only make your application for a bankruptcy notice within six years from the date of judgment. It is then up to AFSA to consider the application.  

The Bankruptcy Notice

A bankruptcy notice is a formal demand for payment of a judgment debt. Therefore, it must be given directly to the debtor or formally served.

The debtor must be served with the bankruptcy notice within six months from its date of issue. 

If your debtor is unable to be served for whatever reason, an application can be made to the court seeking an order for an alternate method. Once served with the bankruptcy notice, the debtor has 21 days to comply. If they fail to do so, you can submit a creditor’s petition to the court.  

A debtor’s failure to comply with bankruptcy notice is considered to be an act of bankruptcy – this is most common. A creditor’s petition is filed with either the Federal Court or the Federal Circuit Court and a hearing date will be set. 

But,  Will I Ever Get Paid?

AFSA notifies the debtor of their bankruptcy status, and a trustee is appointed to manage the bankrupt’s estate. They can be appointed by AFSA or by the creditor who has made the bankruptcy application provided that the trustee gives consent.   

It is then the trustee’s role to deal with the bankrupt’s assets and make payments to creditors as funds become available. The bankrupt debtor is required to complete a statement of affairs, and then the bankruptcy period commences. 

Any funds to be distributed by the trustee are made in order of priority. First to be paid is the trustee’s fees and charges, followed by secured creditors and then unsecured creditors that are if there are actual funds available. 

Declaring your debtor bankrupt is not always the solution to being paid, taken into account the time and expense of chasing your money, additional stress on both parties etc.  But unfortunately, just filing for bankruptcy may be the trigger for your debtor to finally just pay the debt.