The Law Handbook 2024

370 Section 5: Managing your money Closure or freezing of account by trustee or bank If a trustee fails to provide the bankrupt with sufficient funds for living expenses, the bankrupt should contact AFSA, which may investigate the matter. If a bank follows s 125 of the Bankruptcy Act and freezes its bankrupt customers’ funds (including Centrelink payments) on being advised of the bankruptcy, the bankrupt should give their trustee the account number and the bank’s contact number so the trustee can instruct the bank to unfreeze the funds. Withdrawing money from bank accounts before bankruptcy It is not advisable to transfer money to another account or withdraw it before bankruptcy in an attempt to hide the asset from the trustee. Concealing or removing property that is valued $20 or more in the 12 months before bankruptcy is a criminal offence (s 265(4)(a), (7) Bankruptcy Act). The trustee has the right to investigate the matter and claim the money, even if it is not in the bankrupt’s name at the time of the bankruptcy. Motor vehicles A bankrupt can keep a motor vehicle if their equity in the car does not exceed $9100 (as at October 2023), or more if the court or creditors agree. The bankrupt must use the vehicle primarily for transport. Therefore, if the vehicle is unregistered and just sitting in the garage, the bankrupt will not be able to keep it. If the vehicle is worth more than $9100, the trustee can sell it but must return $9100 to the bankrupt (s 116(2C) Bankruptcy Act). Superannuation Superannuation received after the date of bankruptcy In general, the trustee cannot claim superannuation contributions received on or after the date of bankruptcy if the payment is a lump sum. If the payment is a pension, it will be treated as income and the trustee can claim it. However, trustees are empowered to claw back (reverse) contributions to an eligible superannuation plan made by a person who later becomes bankrupt. This can occur in circumstances where, for example, the property would probably have become part of the bankrupt’s estate, or would probably have been available to creditors if the property had not been transferred and the bankrupt’s main purpose in making the transfer was to defeat creditors by preventing the property becoming divisible among the creditors (s 128B Bankruptcy Act). Section 128C of the Bankruptcy Act extends this power to contributions made by a third person for the benefit of the bankrupt. Superannuation received before bankruptcy The trustee can claim superannuation contributions received by a debtor before the date of bankruptcy. Personal injuries compensation The trustee cannot seize: • damages money that the bankrupt has received for a personal injury; or • any property bought with, or substantially the whole property bought with, damages money. If the trustee sells property and the bankrupt has used damages money to pay some (but not substantially the whole) of the property’s purchase price, the trustee must pay the bankrupt ‘so much of the proceeds of realising the property as can be fairly attributed to the protected [compensation] money’ (ss 116(2)(g), 116(4) Bankruptcy Act). Pain and suffering vs loss of income component of damages Courts will not: • split personal injury damages into separate amounts for pain and suffering and income loss; • allow a trustee in bankruptcy to claim the loss of income component of the damages amount paid to a bankrupt. As long as the damages are awarded on a claim for personal injury rather than property, the whole amount of a damages payment is protected by section 116 of the Bankruptcy Act. Household goods and furniture While valuable art collections or antiques will vest with the trustee, the Official Receiver (AFSA) will not claim assets that would be considered normal