The Law Handbook 2024

Chapter 5.3: Understanding bankruptcy 377 all debt recovery action on the client’s Centrelink debts. • Centrelink should stop all debt recovery action for the bankruptcy period; it should also refund any payments/withholdings that it has deducted after the date of bankruptcy and before discharge. • Non-fraudulent Centrelink debts are generally extinguished by bankruptcy. • Fraudulent Centrelink debts are not extinguished by bankruptcy. Centrelink will recommence withholdings for fraudulent debts when the debtor is discharged from bankruptcy. Centrelink overpayments Centrelink debts are not wiped by bankruptcy if the debt occurred as a result of a consumer’s fraudulent behaviour. Centrelink can make incorrect decisions on what constitutes fraudulent behaviour. As a result, many discharged bankrupts might be repaying Centrelink debts that should have been wiped by the bankruptcy. If a debtor is bankrupting (or has bankrupted) and has a Centrelink debt, they should get advice on: 1 whether there are circumstances to support an application that the debt was not fraudulently incurred; 2 the review processes within Centrelink and the AAT in relation to challenging a Centrelink decision to pursue the debt after bankruptcy; and 3 whether a debtor who has already been discharged from bankruptcy can apply for a refund of any payments made to, or taken by, Centrelink. Fines Penalties or fines imposed by a court in respect of an offence against a law are not provable in bankruptcy (s 82 Bankruptcy Act). This does not apply to proceeds of crime orders and, at the other extreme, to parking fines issued by a local council. The application of the Bankruptcy Act to fines is a complex area of law and legal advice should be obtained where a person is considering bankrupting on a fine, as the particular circumstances surrounding the imposition of a fine may impact upon whether or not that fine is extinguished upon discharge from bankruptcy. Debts resulting from fraud A debt incurred by fraud, or fraudulent breach of trust, can be provable in bankruptcy but is generally not extinguished on discharge from bankruptcy (s 153(2)(b) Bankruptcy Act). After bankruptcy, a debtor can apply to stay (suspend) an action by the creditor in relation to a fraudulent debt. Such an application, if successful, would have the same effect as extinguishing the debt (s 60(1)(b)). Debts arising from compensation or restitution orders Debts may arise from compensation or restitution orders (e.g. ss 74, 77, 84, 85B Sentencing Act 1991 (Vic)) and from pecuniary penalty orders. Pecuniary penalty orders require payments to the Commonwealth for amounts based on the benefits a person has derived from an offence or from unlawful activity (Part 2 Proceeds of Crime Act 2002 (Cth)). Non-provable orders Section 82(3A) of the Bankruptcy Act provides that an ‘amount payable under an order made under a proceeds of crime law is not provable in bankruptcy’. Provable orders The Bankruptcy Act does not categorise other types of restitution orders as being either provable or not provable. For example, a debt payable under a restitution order is a provable debt and a debtor can apply for a stay of proceedings insofar as it is required restitution (s 60(1)(b) Bankruptcy Act). Deciding whether to cease payment under the order Before deciding that bankruptcy means that you can cease payment under a restitution order, you should first get a copy of the order to decide what type of restitution order has been made. Check that: • it is not an order made under proceeds of crime legislation; and • the debtor will not face a criminal penalty or other adverse consequence for failure to pay;