Mike turned 50 last week. His family used to celebrate birthdays with him, but not in recent years.

Since he was made redundant, Mike found it increasingly difficult to secure a job due to his age and skills.

He tried starting his own business but it didn’t flourish. His credit card bills are huge and he can’t afford the minimum repayments.

In desperation, family and friends lent him money but he couldn’t pay them back. Now they don’t answer his phone calls and refuse to spend holidays with him.

This morning, a person came by his home and served a document. It read ‘Bankruptcy Notice’.

Mike doesn’t know what a Bankruptcy Notice is or how it will affect him.

“What should I do?”, he trembled.

Bankruptcy Notice – 10 Things You Need to Know

1) A creditor must have a judgment debt of at least $5,000 against you personally or jointly with another. The judgment debt may be comprised of more than one judgment.

2) The judgment upon which the debt is based must not be ‘stayed’ which means there is no other court order preventing enforcement action of the judgment debt.

3) A bankruptcy notice is issued by the Australian Financial Security Authority (formerly known as the Insolvency and Trustee Service Australia) and is recorded on a register called the “National Personal Insolvency Index”. This information is retained permanently on its records.

4) The most common means by which an act of bankruptcy is committed is a failure to set aside a bankruptcy notice which has been validly served on you within 21 days from the date of service of the notice (s40(1)(g) Bankruptcy Act 1966). There are 15 other acts of bankruptcy set out in the Bankruptcy Act.

5) Other acts of bankruptcy include:

(i) if you leave Australia with the intent of defeating or delaying payment to your creditors;

(ii) if you depart from your house or usual place of business;

(iii) if you ‘absence’ yourself or otherwise go into hiding;

(iv) if you begin to keep house which means that you avoid coming to the door when the process server attends your premises.

6) A bankruptcy notice must be served on the debtor. This is usually served in person on the debtor. This is usually served in person which is referred to as personal service.  An affidavit of service proves the fact the bankruptcy notice has been served.

7) Alternative and other valid means of service of a bankruptcy notice may be made by:

(i) sending it to the last known address;

(ii) left in an envelope of the DX.

(iii) left at the last known address;

(iv) sent by facsimile or other electronic means such as email.

(v) serving the notice by an order for substituted service by an order of the court and serving the bankruptcy notice in the manner directed by the court.

8) A bankruptcy notice may be set aside by an order of the Federal Court of Australia or Federal Circuit Court of Australia. Timing is critical in making an application to extend the time for compliance of a bankruptcy notice and to set aside a bankruptcy notice. At the same time this is done a separate application must be made to the court from where judgment was entered to set aside the judgment and file a Defence.

9) If a bankruptcy notice is not completed accurately in accordance with the rules, a debtor will be entitled to challenge the bankruptcy notice on grounds that it is defective. If successful this will cause the notice to be set aside. Common errors made by the issuing creditor (or his or her solicitor) include:

(i) using the wrong rate of interest;

(ii) overstating the amount of the debt due;

(iii) not providing a correct address of the creditor;

(iv) not signing the bankruptcy notice;

(v) failing to serve the bankruptcy notice within 6 months of issue by AFSA or seeking an extension of time of another 6 months by AFSA (prior to the expiration of the notice), so that it becomes stale.

10) A bankruptcy notice properly issued and served under the Act will deem a debtor to have committed an act of bankruptcy. An act of bankruptcy will permit a creditor to file a creditor’s petition within 6 months of the date of the act of bankruptcy. An act of bankruptcy does not render a debtor bankrupt. A court order is required if the debtor is involuntarily bankrupted. Whereas voluntary bankruptcy by issue of a debtor’s petition rely on completely different framework under the Bankruptcy Act 1966.