Bankruptcy: How a person can be declared bankrupt in Australia

by The FindLaw Team

It’s probably safe to say that most of us will experience some sort of financial hardship at some stage of our lives. Luckily for most of us, we’ll probably find a way out of our predicament and not have to deal with such an issue ever again (ideally). Unfortunately, there may be others whose financial woes are more extreme, and they may be forced into bankruptcy either on their own accord, or have a creditor petition the Federal Court or Federal Magistrates Court to declare them bankrupt.

Who can become bankrupt?

In Australia, only individuals can become bankrupt. However, the range of people that can declare bankruptcy may include children, either voluntarily, or if there is an enforceable debt against the child, then the child may be forced into bankruptcy.

Adults of course can become bankrupt. However, the concern for some, may involve relationships where the parties are married to one another, and the question that may arise is: Does the bankruptcy of a spouse have any effect on the other party? Well, if one of the parties to the marriage does become bankrupt, it will have no effect on the spouse, unless that person is a guarantor of the debt, has a joint liability, or is a joint owner in the divisible property with their spouse.

How can a person become bankrupt voluntarily?

Any person with a provable debt, such as debts associated with utility bills, or a tax debt, can make an application for bankruptcy.

Upon making the decision to become bankrupt, the person has to complete a debtor’s petition and a statement of affairs.

When making a statement of affairs, a person declaring bankruptcy must outline all of their liabilities, even if all of their liabilities aren’t provable.

Forms can be obtained from the Insolvency and Trustee Service Australia via its website, or a legal stationer.

What if a couple to a marriage have a joint debt?

A couple (whether married or not) who have joint debts, can submit separate debtor’s petitions and statement of affairs. The joint debts should be shown in full in each statement because all debtors are fully liable for the payment, and the debts generally cannot be divided.

Can the petition be rejected?

A petition can be rejected by the Official Receiver if it is concluded that that the debtor may be able to fulfil their liabilities within a reasonable time period. Additionally, a petition can be rejected if the person is unwilling to pay their debts, or they have been bankrupt at least three times previously, or once within the preceding five years.

Creditors and bankruptcy

Creditors also have the ability to make a person bankrupt upon the presentation of a creditor’s petition to the Federal Court or Federal Magistrates Court if they are owed more than $5,000.

If a creditor decides to make a person bankrupt, a judgment must first be made by a court in relation to the debt, a bankruptcy notice will then be prepared, formally requesting the person pay their debt within the time period specified in the notice. Finally, the creditor must submit the notice to the Official Receiver.

A person who does not pay their debt, or have the bankruptcy notice set aside by a court within the time limit, may be deemed to have committed an act of bankruptcy, and a creditor will then be able to make an application to either the Federal Court, or the Federal Magistrates Court to have the person declared bankrupt.

Upon the declaration that a person is bankrupt, the court will issue a sequestration order, resulting in the divisible property of the debtor coming under the control of a private trustee, or the Official Trustee.

No matter the circumstance of how a person becomes bankrupt, it’s never pleasant. If you are experiencing financial difficulties and are considering bankruptcy, please seek the help of a lawyer who will be able to inform you of all the options available in relation to your situation.


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