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How to Enforce Judgments in Bankruptcy Proceedings by Elevate Lawyers Firm

Enforcement of Judgments in Bankruptcy Proceedings: What You Need to Know

Once a party has been awarded judgment against a debtor, the next challenge is finding the most effective way in which to enforce the judgment. In this article, we focus on how you can enforce a judgment in Australia through bankruptcy proceedings.

Enforcement of judgments in bankruptcy proceedings by Elevate Lawyers

How do you initiate the bankruptcy process?

If you or your business is owed $10,000 or more, you can file a bankruptcy notice to make your debtor bankrupt. Before doing that, you must perform a search of the Bankruptcy Register in order to confirm if the debtor is already bankrupt, or has a debt agreement with another creditor.

To initiate the bankruptcy process, the creditor must prepare a bankruptcy notice and lodge it online with the Australian Financial Security Authority (AFSA). AFSA will then issue the bankruptcy notice if the conditions under Section 41 of the Bankruptcy Act 1966 (Cth) are met. These conditions are:

  1. the creditor must have obtained a judgment against the debtor for at least $10,000;
  2. the judgement must be no more than 6 years old; and
  3. the judgement must not be stayed.

After AFSA issues the bankruptcy notice, the creditor has six months in which to effect service on the debtor. Regulation 16.01 of the Bankruptcy Regulations 1996 (Cth) state that the service of a document can be through post, personal service, email, or left at the debtor’s last known address.

Once service is effected, the debtor has 21 days in which to comply with the bankruptcy notice.

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 can a Creditor’s Petition be filed?

An act of bankruptcy must have occurred before a creditor’s petition can be filed. Section 40(1) of the Bankruptcy Act 1966 (Cth) sets out the different ways in which 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 the creditor’s petition, the Court may make a sequestration order, which declares the debtor bankrupt.

What happens after the declaration of bankruptcy?

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:

  • conduct seizure and sale of the bankrupt’s property;
  • carry on the 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 priority with respect to payment of its petitioning creditor’s costs.

Do you need legal assistance when filing a bankruptcy notice?

You may need commercial debt disputes lawyers when filing a bankruptcy notice in order to assist with the following:

Calculation of post-judgment interest.

You may be able to claim interest only when the Court allows it. You may require legal assistance as it is your responsibility to ensure that the calculation of interest is correct. More so, legal assistance is required because a schedule will need to be submitted that shows how you calculated the interest and the applicable law that you used to claim such interest.

Requesting a bankruptcy notice for an overseas debt.

You can file a bankruptcy notice for a debt incurred overseas, and you may need lawyers to provide advice to you with respect to registering the foreign judgment or order in an Australian court.

Technicalities relating to service of a bankruptcy notice.

Bankruptcy notices can be served personally, or by post, courier, or email. Given the significant consequences of non-compliance with a bankruptcy order, it is best that the notice is served personally. But there are circumstances that can make personal service difficult such as when the person who owes you money lives overseas or can’t be found at the last known address. When personal service is impossible, you may apply for substituted service, and which you may need legal advice to proceed with such an application.

Key takeaway

Enforcement of judgments is an effective way of getting back money that was owed to you because these documents are vested with the authority of the Court. Enforcements are legal proceedings needing the expertise of legal professionals trained in resolving business debt disputes. Complexities in enforcements also arise in some cases (e.g. debtor is overseas or can no longer be found in the last known address) which may warrant the assistance of lawyers, especially in terms of which methods of service are available to increase the chances of getting the judgment or order enforced.

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