Voluntary (debtor's petition) Anyone who owes a debt of any amount to another person can enter bankruptcy voluntarily by filing a debtor's petition with the Official Receiver at the Insolvency and Trustee Service Australia (ITSA), see Contacts. ITSA provides a 'one stop service' where forms can be completed, lodged and general information provided on bankruptcy and the alternatives. When the petition is accepted, the debtor is automatically declared bankrupt. No fee is payable and there is no need to go before a court. In certain circumstances, for example where a debtor has acted dishonestly, court proceedings may follow, see public examination.

Blank Debtor's Petitions and Statements of Affairs are available from the ITSA.

Involuntary (creditor's petition)

A creditor may make a debtor bankrupt only if the amount owed to that creditor exceeds $5000. A combination of creditors to whom debts totalling $5000 or more are owed may join together to make the debtor bankrupt.

Although a creditor may threaten to make a debtor bankrupt, the threat is not often carried out against non-business debtors, as it is an expensive process. Most non-business debtors who become bankrupt do so voluntarily.

To make a debtor bankrupt, a creditor first obtains a judgment(s) or order(s) for the debt from a court (see debt) and then applies to the Official Receiver to issue a Bankruptcy Notice requiring the debtor to pay the debt within a set time (usually twenty-one days unless in accordance with s 40(1)(g)(ii) [Bankruptcy Act 1966 ]. A debtor who is not able to pay the debt within that time commits an 'act of bankruptcy' [Bankruptcy Act 1966 s 40], which gives the creditor the right to apply to the Federal Court or the Federal Magistrates Court seeking a creditor's petition to declare the debtor bankrupt. The creditor must pay a filing fee of $374 in the Federal Magistrates Court if the creditor is a person or, if a corporation, $745. Higher fees apply in the Federal Court.

If the debtor can satisfy the court that he is solvent and, given a reasonable time (say one to two months), all debts can be paid, the hearing will be adjourned; if not, the debtor may be made bankrupt.

The court order declaring a debtor bankrupt is called a sequestration order, on the making of which all the bankrupt's property comes under the control of the trustee.

Once a debtor becomes bankrupt, the creditors can take no further action against the bankrupt in respect of the bankrupt's debts which were owing at the date of bankruptcy [s 58(3)]. Instead a creditor has the right to lodge a proof of debt with the trustee and may then receive a share of the bankrupt's property. To lodge a proof of debt the debt must be provable to the satisfaction of the trustee. Debts incurred after bankruptcy can be sued for in the normal manner.

If a debtor dies leaving insufficient assets to pay his or her debts, a creditor who is owed $5000 or more may apply for an order of administration [Bankruptcy Act 1966 s 244]. This requires the trustee to distribute the deceased's assets to pay part, or all, of the debt in accordance with the Act. The person administering the estate of a deceased person may also seek an Administration Order of the estate in bankruptcy.