When a debtor who cannot pay their debts has their money and property taken over and managed by a trustee who uses it to pay back creditors. The debtor is then called a bankrupt. usually lasts for three years after the date the bankrupt files the statement of affairs. (Technically, bankruptcy by a debtor’s petition is three years and one day; see ‘When does the A person who owes a debt. become bankrupt?’, above.) The (1) To fulfil an obligation or be released from an obligation. For example, a debtor can discharge a debt by paying it; a prisoner can be discharged (released) from jail. is automatic unless the trustee files an objection to the discharge and the objection has ‘taken effect’ (see ‘Objections to discharge’, below).
Objections to discharge
Either the Official Receiver (AFSA) or the trustee can file a written objection to discharge of the bankruptcy. If the objection ‘takes effect’, the bankruptcy A document that sets out what a person wants to happen to their money and other property after they die. be extended to either five or eight years, depending on the grounds for objection. The objection takes effect as soon as it is filed with the Official Receiver (AFSA) and entered on the National Personal Insolvency Index. The objection ceases to have effect if the trustee or Official Receiver (AFSA) withdraws the objection.
The grounds on which an objection can be lodged are detailed in section 149D of the Bankruptcy A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation..
Extension of bankruptcy to eight years
The grounds on which the period of bankruptcy can be extended to eight years include (s 149A(2)(a)(i) Bankruptcy Act):
- making an undervalued transaction or a transfer to defeat creditors (see ‘Property of a non-bankrupt spouse’, above);
- failing to provide details of property or income; or
- failing to disclose a Legal responsibility, enforced by civil or criminal courts. that existed before the date of bankruptcy.
Extension of bankruptcy to five years
The grounds of objection on which the period of bankruptcy can be extended to five years include (s 149A(2)(a)(ii) Bankruptcy Act):
- failing to notify the trustee of a change of address;
- failing to disclose all debts and creditors; or
- failing to attend an interview.
Failure to disclose particulars of debts and creditors does not have to be deliberate in order for an objection to take effect. It is important to give accurate details of all debts when filing the statement of affairs.
A bankrupt can apply to the Inspector-General (AFSA) or to the AAT to review a decision in relation to an objection to discharge.
A bankruptcy can be annulled if:
- a bankrupt pays all debts in full, including interest and fees owing to the trustee;
- the bankrupt makes an The first step in agreeing to make a legally binding agreement. An offer must be accepted before there can be a legally enforceable contract. For example, a person can offer to sell their car for $5000 and a buyer can accept the offer and pay that purchase price. to pay their debts, which is accepted by creditors and approved by the An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate.; or
- the court is satisfied that a An order taking away a bankrupt’s property so that it can be used to pay off their debts. ought not to have been made or a debtor’s petition ought not to have been presented (s 153B Bankruptcy Act).
The bankrupt’s obligations after discharge
In general, a discharged bankrupt is not released from, and continues to be liable to pay, the following debts:
- debts incurred after the commencement of the bankruptcy;
- debts incurred by An intentionally dishonest act, or lack of action, done to deceive someone and bring some advantage over those who have been deceived.;
- Money paid to a person to financially support them. When a couple has separated both parents have a duty to support their children, and a court can order a parent to make regular payments to support the children. Maintenance for a spouse is now less common, and must be applied for within 12 months of a divorce. It is usually covered in a final settlement of all property. Money owed that is due on a certain date and is late being paid (overdue). (subject to a court order to the contrary);
- non-provable debts such as Not yet set as a definite amount. For example, unliquidated damages are damages where the final amount is still to be worked out by a judge or jury; an unliquidated debt has not been paid or cleared balance remains uncertain or in dispute. See also liquidated. A court order for money to be paid to someone to compensate them for a loss suffered as a result of a civil wrong or breach of contract. For example, a person who caused a serious permanent injury to another person can be ordered by the court to pay damages that compensate the injured person for their loss of income from being unable to work. See also aggravated damages; compensatory damages; general damages; liquidated damages; nominal damages; special damages., HELP debts, etc.;
- income contributions due during the bankruptcy; and
- some criminal penalties, such as payments due under good behaviour bonds (ss 153A–153B Bankruptcy Act).
The bankrupt is otherwise released from any obligation to pay provable debts on discharge, although secured creditors maintain the right to seize and sell any secured property.
A discharged bankrupt is still required to give assistance to the trustee in the realisation and distribution of property vested in the trustee (s 152).