December 8, 2016

Setting aside a bankruptcy notice

To bankrupt an individual, it is common for creditors to issue a bankruptcy notice prior to filing a creditors’ petition. A bankruptcy notice is to demonstrate to the court that an act of bankruptcy has occurred in the six months prior to filing a creditor’s petition.

What should you do if you receive a bankruptcy notice? If the bankruptcy notice is valid and there are no grounds for dispute, you should assess your ability to comply with the demand for payment or consider what personal insolvency options may be available to you. Alternatively there are many reasons a bankruptcy notice may be invalid and open to challenge.

Any challenge to a bankruptcy notice must occur within 21 days of receipt. If the notice is not challenged within this time, an act of bankruptcy has occurred, even if the bankruptcy notice is later set aside.

To set aside a bankruptcy notice, an application must be made to court to demonstrate that the bankruptcy notice is defective in a substantive way or that the defect is capable of causing substantial injustice.

Some of the more common reasons a bankruptcy notice may be challenged and set aside:

Incorrect Service

A bankruptcy notice may be challenged if it is not served in the following manner:

  • Sent by post or courier service to the person’s last known address;
  • Left in an envelope or similar package marked with the person’s name and relevant document exchange number, at a document exchange maintained by a person;
  • Left in an envelope or similar package marked with the person’s name at their last known address;
  • Personally delivered to the person; and
  • Sent by facsimile transmission or other electronic transmission.

Generally, creditors will attempt to serve bankruptcy notices on someone personally to eliminate any dispute about the date of service. If a creditor is unsuccessful in serving the notice in the prescribed manner, they may apply to court for substituted service.

Incorrect Details

Bankruptcy notices can be successfully challenged where they have misstated any of the following:

  • A person’s name or address;
  • The terms of a judgement debt; and
  • The amount of debt claimed.

Dispute of judgement debt upon which bankruptcy notice is based

A bankruptcy notice may be set aside if the debtor disputes the validity of the debt. The debtor may have paid the amount owing under the judgement or proceedings may have been commenced to set aside the judgement.

Counter-claim, set-off or cross demand

A debtor may make an application to set aside a bankruptcy notice on the basis they have a counter-claim, set-off or cross demand against the creditor.

If an application is made to set aside a bankruptcy notice, creditors should, at the same time, apply for an extension of the bankruptcy notice period to safeguard against expiry of the notice.

Unfortunately it isn’t all good news. If a bankruptcy notice is successfully set aside due to a defect, a creditor may simply correct the defect and issue a second bankruptcy notice.

Any person that is served with a bankruptcy notice should consider their financial position and options that may be available to them.

If any of your clients have received a bankruptcy notice and would like to discuss the options please contact one of SV Partners insolvency experts on 1800 246 801.

Terry Rose – Director, Queensland

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