How is a Person Made Bankrupt ?

There are two ways a person can be made bankrupt.


The first way is voluntarily, through completing and lodging a debtor’s petition and a Statement of Affairs outlining your position to ITSA and or a private trustee who will lodge these forms with ITSA along with a consent to “Act as Trustee”.  You are then “a bankrupt”.

Bankruptcy through order of the Court

A person who claims that you owe them money can ask the Federal Court or the Federal Magistrates Court to declare you bankrupt. This person is called a creditor and their application is called a Creditor’s Petition. The creditor will give you a copy of the Creditor’s Petition, which includes a time and date for you to attend court. To declare you bankrupt the creditor must prove to the Court that you have committed an act of bankruptcy.

The most common act of bankruptcy is failing to follow the instructions in a bankruptcy notice. This notice is issued by the Insolvency and Trustee Service Australia (ITSA) and then given to you by the creditor. The main instruction is that you pay the amount of a judgment debt within the time specified in the bankruptcy notice.

At the hearing the Court decides whether or not you have committed an act of bankruptcy. Among other things, the Court will consider whether:

■ you are the person who owes the money

■ the amount of the debt shown in the bankruptcy notice is correct, and

■ you are able to pay your debts.

If you do not agree to being made bankrupt then you need to complete several forms and file them with the Court at least three days before the hearing. The steps you need to follow are explained in more detail under the heading ‘Steps if you do not agree to being made bankrupt’.