Bankruptcy: Overview

What is bankruptcy 

Bankruptcy is a legal process for individuals (debtor) to be legally declared as unable to meet their debt obligations. Bankruptcy only applies to individuals, not companies.  

Bankruptcy can be applied for in two ways: 

  1. A debtor’s petition, where you apply for bankruptcy yourself. 

  1. A creditor’s petition, where a creditor applies to a court to have the debtor declared bankrupt. If successful a court will make a sequestration order, where it is decided that if the debts are unable to be paid within a reasonable time the debtor is declared bankrupt. 

The Court’s jurisdiction 

The Federal Circuit and Family Court of Australia (the Court) has jurisdiction over matters related to general and personal insolvency under the Bankruptcy Act 1966 (the Bankruptcy Act). The jurisdiction does not cover corporate insolvency.  

Bankruptcy matters can also be heard in the Federal Court of Australia. The Court and the Federal Court have harmonised rules for bankruptcy matters.  

Role of registrars 

Most bankruptcy matters are case managed and determined by registrars of the Court. The bankruptcy matters within the delegated jurisdiction of a registrar are set out in schedule 1 to the Bankruptcy Rules.  

These matters include creditors' petitions, applications to set aside, or to extend time in which to comply with, a bankruptcy notice, applications to administer a deceased estate in bankruptcy under the Bankruptcy Act and applications for substituted service orders. 

Powers of the Court 

The Court has the following general powers in bankruptcy: 

  • full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part VIIII, X or XI of the Bankruptcy Act, coming within the power of the Court; and 

  • the power to make orders (including declaratory orders or orders granting injunctions or other equitable remedies) as the Court considers necessary for giving effect to the Bankruptcy Act. 

The Court may direct that inquiries be made and accounts be taken for the purpose of any proceeding that the Court considers necessary and may give special directions as to how the account is to be taken. 

The Court may, on application of a registrar, official receiver, trustee or inspector general, as the case requires: 

  • order a person who has failed to comply with an order, direction, requirement or request to comply with it, or  

  • if it thinks fit, make an immediate order for the committal to prison of that person. 

In exercising its jurisdiction, the Court can hear and determine in open court the matters set out in subsection 31(1) of the Bankruptcy Act and may award costs pursuant to section 32 of the Act. 

The Court has power to transfer bankruptcy proceedings to the Federal Court. Similarly, bankruptcy proceedings may be transferred to the Court by the Federal Court. 

Applicable rules