The Law Handbook 2024

Chapter 5.3: Understanding bankruptcy 373 person) if the bankrupt contributed to the purchase of property and then transferred ownership to the non-bankrupt spouse before the bankruptcy. These antecedent transactions are void against the trustee, so the trustee can claim property that the bankrupt has transferred: 1 for no or little consideration in an undervalued transaction within five years prior to bankruptcy if the property was transferred for less than market value (s 120 Bankruptcy Act); 2 to defeat creditors prior to bankruptcy and the bankrupt was insolvent at the time of the transfer (s 121); and 3 to a third party in an undervalued transaction or to defeat creditors at any time prior to bankruptcy if the transfer was made with the intention of defrauding creditors (s 121A). A transfer by an insolvent person to a creditor before bankruptcy may give the creditor a preference over the other creditor(s) and is void against the trustee (s 122). NOTE: PRESUMPTION OF INSOLVENCY There will be a rebuttable presumption of insolvency for the purposes of point two, above, if the bankrupt failed to keep proper books, accounts and records during the time of the transfer or, if they did keep such account, failed to preserve them (s 121(4A) Bankruptcy Act). The trustee will not be able to claim property, even if it falls within the first two of the above categories, if: • the transfer was made in order to pay tax debts or maintenance liabilities (not including liabilities under a binding financial agreement within the meaning of the FL Act); or • the transfer was under a debt agreement; or • the cost of recovering the property would outweigh the benefit to creditors. What happens to a bankrupt’s income? Contributions to trustee Bankrupts who earn above a certain amount must make some payments (contributions) from their income to their trustee. Definition of income The Bankruptcy Act defines income broadly (ss 139L, 139M, 139N). Examples include a pension paid from a superannuation fund and fringe benefits such as subsidised rent or use of a company car. Actual income threshold amounts The net income that a bankrupt can earn before being required to make contributions is called the actual income threshold amount ( AITA ) (s 139K Bankruptcy Act). The AITA for a bankrupt with no dependants as at October 2023 was $68 769 net per year). The bankrupt’s AITA is made up of all income derived during the assessment period, less any income tax payable and less any amount due for child support, plus any income tax refunds and plus relevant percentage increases for dependants’ income. The AFSA website (www.afsa.gov.au) keeps an updated table showing the current AITA amounts. If the bankrupt has one dependant, their income threshold is increased by approximately 18 per cent; by 27 per cent for two dependants, by 32 per cent for three, by 34 per cent for four and by 36 per cent for more than four dependants. Definition of dependant Section 139K of the Bankruptcy Act defines a ‘dependant’ as a person who lives with the bankrupt, is wholly or partly dependent on the bankrupt and who does not earn more than the ‘prescribed amount’. The current prescribed amount is $4253 (as at October 2023). Applying to vary income contributions on hardship grounds The bankrupt can apply in writing to the trustee to have their income contribution varied on the basis of hardship, for reasons such as ongoing medical expenses, the need to pay for child care in order to work or the expense of paying for private rental accommodation (s 139T Bankruptcy Act). If the bankrupt is not happy with the trustee’s response, or if the trustee does not make a decision after 30 days, the bankrupt can: • request the Inspector-General (AFSA) to review the trustee’s decision, and apply to the AAT if not satisfied with the Inspector-General’s decision; or