Bankruptcy
Bankruptcy is a legal status offering protection from further action by creditors whose debts are 'provable in bankruptcy'. A person can become bankrupt by filing a debtors petition, a statement of affairs, and an acknowledgement of having read the Prescribed Information with the Official Receiver. These forms and additional information are available on the ITSA Forms page. A creditor may also petition for a person's bankruptcy in the Federal Court or Federal Magistrates Court.
The bankrupt’s trustee will either be a registered trustee, if he has agreed in writing to be the trustee prior to the person becoming bankrupt (by filing a Consent to Act [Word] [PDF] with the Official Receiver), or the Official Trustee (represented by ITSA). The duties of a trustee are very wide but the main ones are realising whatever assets the bankrupt has that are not protected from bankruptcy, recovering contributions if the bankrupt is on a high income and reporting to creditors.
The property available to the trustee excludes certain categories of assets that are protected from bankruptcy such as most household goods, superannuation, limited tools of trade and motor vehicles up to a set limit. For limits please refer to Current Amounts.
The trustee has considerable powers to claim back property or money which the bankrupt may have transferred to others in order to avoid it falling in the hands of creditors. Similar powers exist to claim back payments to creditors who may have had their debts paid in preference to other creditors shortly before bankruptcy.
Bankrupts on relatively high incomes are required to make contributions (see current amounts for current income threshold amounts) to their bankrupt estate from their income. The level of contributions depends on the net income after allowing for tax and any child support being paid and the number of dependants the bankrupt has.
If the trustee realises sufficient funds, the trustee’s expenses are paid, then the trustee’s remuneration and if there is any money remaining, it is shared among the creditors in proportion to their provable debts. Information on the distribution of funds and the trustee’s remuneration for the official trustee can be accessed via the pamphlet 'ITSA Statutory Fees and Charges'.
The usual period of bankruptcy is three years. A trustee may object to a bankrupt’s discharge prolonging their bankruptcy by as much as five years under certain circumstances.
A bankrupt’s ability to obtain credit will be reduced, they will not be able to manage a corporation and they will require written approval to travel overseas.
Creditors’ rights are altered by bankruptcy. Their right to sue for their debt is converted to a right to prove in the estate for their debt. Their knowledge of the bankrupt and his business or property may be useful to the trustee. Further information about provable debts and creditors rights and responsibilities.
Meetings of creditors are generally held only in Part X matters to consider the debtor’s proposal and in bankruptcy matters in which the registered trustee is trustee of the estate, to approve the trustee’s remuneration.
You are disqualified from managing a corporation while you are a bankrupt unless you obtain permission from the court. Further information on what you need to do if you are presently managing a corporation is available from the Australian Securities & Investment Commission.
Amos Insolvency utilises the services of an experienced external Registered Trustee to provide such Trustee services.
