There are generally two ways in which a person can become bankrupt in Australia.
Firstly, the person seeking to become bankrupt (the Debtor) can present a Debtor’s petition to the Official Receiver pursuant to section 55 of the Bankruptcy Act 1966 (Cth) (the Act).
Secondly, a creditor of the Debtor can present a creditor’s petition to the Court in accordance with section 43 of the Act.
Under section 55(2), a Debtor’s petition must be in the approved form and accompanied by a statement of affairs of the Debtor and a copy of that statement.
Furthermore, in accordance with section 55(2A) of the Act, at the time that the Debtor’s petition is presented, the Debtor must either:
Pursuant to section 55(3A) of the Act, the Official Receiver may reject a Debtor’s petition if:
Under section 55(4) of the Act, the Official Receiver must accept a Debtor’s petition, unless they reject the petition under section 55 or are directed by the Court to reject it.
Where the Official Receiver accepts a petition presented under section 55, they must endorse the petition accordingly, upon which the debtor becomes bankrupt.
In accordance with section 55(8) of the Act, a Debtor who becomes bankrupt under section 55 of the Act continues to be bankrupt until:
Under section 43(1) of the Act, the Court may make a sequestration order against a Debtor on a petition presented by a creditor where:
A Debtor will commit an act of bankruptcy, if they do any of the acts listed under section 40 of the Act. For example, a Debtor will commit an act of bankruptcy if they:
That would be void against the trustee (the person responsible for administering the Debtor’s estate on bankruptcy) if the Debtor became bankrupt.
Under section 47(1) and (1A) of the Act, a creditor’s petition must be verified by the affidavit of a person who knows the relevant facts and in the prescribed form. This will usually be the creditor.
Moreover, once a creditor’s petition is presented, it cannot be withdrawn except with the leave of the Court.
Pursuant section 43(2) of the Act, once a sequestration order is made against the Debtor, the Debtor becomes bankrupt. The Debtor will continue to become bankrupt until:
You can become bankrupt voluntarily by presenting a debtor’s petition. On the other hand, you can be made bankrupt involuntarily if one of your creditors petitions the Court for a sequestration order to be made against you.
It is extremely important that both Debtors and creditors comply with the requirements under the Act, as a failure to do so may result in a petition being denied or dismissed by the Court.
Bankruptcy has serious implications for all aspects of a debtor’s life, as such, a person should become, nor be made, bankrupt lightly.