The filing of a bankruptcy petition commences bankruptcy proceedings, which may be voluntary (filed by the debtor) or involuntary (filed by a creditor). The court hearing the petition may make an order known as a sequestration order. The sequestration order vests the bankrupt’s assets in the official receiver for distribution among creditors according to the rules laid down in the Bankruptcy Act 1966 (Cth).
In the usual case, the creditors only receive a proportion of the full amount of debts owed to them. The proportion will depend on the extent to which the bankrupt’s liabilities exceed his or her assets. Bankrupt individuals are generally discharged from bankruptcy three years after they become bankrupt.
LegalVision can assist with bankruptcy and insolvency matters, including the role of the trustee in a bankruptcy and the order in which assets can be distributed among creditors.
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5 Things You Need to Know About Bankruptcy
1Bankruptcy relates to individuals, not companies. “Going bankrupt” generally means committing an “act of bankruptcy”, as defined in the Bankruptcy Act. Committing an “act of bankruptcy” includes acting in a manner which indicates that the debtor in question is bankrupt (such as refusing to pay invoices); failing to pay an amount that is due under the judgment of a court; or acting in a manner which is designed to delay creditors.
2Once a debtor has committed an “act of bankruptcy”, any creditor can petition the courts to have the debtor declared bankrupt. The court then decides whether to grant a sequestration order, which is effectively declares the person in question bankrupt.
3If the court issues a sequestration order a trustee will be appointed as administrator of the financial affairs of the bankrupt person. Generally, the role of the trustee in bankruptcy is to sell the debtor’s assets and repay the debtor’s creditors. It is important to note that secured creditors will be paid first. Unsecured creditors may only receive a small percentage of the amount owing to them, if anything.
4An individual will remain bankrupt until he or she is discharged, which usually occurs after 3 years, but can be earlier if ordered by a court.
5Finally, remember that if you discover that you have committed an “act of bankruptcy”, you can ask a court to declare you bankrupt. In other words, you will voluntarily be declaring bankruptcy.