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INFORMATION FOR CREDITORS ABOUT BANKRUPTCY
INFORMATION FOR CREDITORS ABOUT BANKRUPTCY
Reproduced by express permission form the Commonwealth Government, Insolvency
and Trustee Services Australia.
June 2004 Edition
What is Bankruptcy
Bankruptcy is a legal process where people, who cannot pay their debts or
reach a compromise or arrangement with their creditors, have their affairs
administered under the Bankruptcy Act.
The effects of bankruptcy are:
- The bankrupt obtains relief from his or her creditors
- The creditors receive an equitable distribution of the
bankrupt’s property (dividends).
Bankruptcies are administered by a trustee, either a registered trustee or
ITSA.
If a person makes themselves bankrupt they may choose the trustee. If they do
not choose, then ITSA is their trustee.
During bankruptcy the creditors may decide to change trustees, and trustees
may also obtain the consent of another trustee to replace them.
A registered trustee is a person registered with ITSA to be a
trustee of bankruptcies and Part X agreements
See the Prescribed Information booklet for definitions of other bankruptcy
terms
How does bankruptcy affect creditors?
Unsecured creditors:
- cannot take any remedy against the person or property of
the bankrupt
- cannot commence or take a fresh step in any legal action,
such as a summons or garnishee, and must stop any recovery action by a sheriff
or bailiff
- should not generally be paid by bankrupts
- may lodge a proof of debt with the trustee, and participate
in any dividends.
Secured creditors:
A secured creditor is a creditor who holds a security over an asset (eg by a
mortgage or a bill of sale).
Secured creditors:
- Are entitled to take possession of the secured asset and
sell it if the bankrupt is in default
- May lodge a proof of debt in the bankruptcy as an unsecured
creditor for any loss resulting from dealing with their security.
A bankrupt may agree to pay a secured creditor in order to keep an asset;
however, if it is a divisible asset the trustee may seize and sell the asset
when there is sufficient equity.
Divisible assets are assets/property which can be legally sold in
bankruptcy by the trustee
A garnishee is an automatic deduction from a bankrupt’s income or
bank account arranged without his or her consent
A proof of debt is a formal claim for a debt lodged by a creditor
with the trustee
Which debts does a bankrupt have to pay during bankruptcy?
1. Some debts are not provable in bankruptcy. Some creditors cannot receive
any money from the bankrupt estate for certain types of debts but they can
continue debt recovery action against the bankrupt even during bankruptcy, for
example:
- penalties and fines imposed by a court
- damages from accidents (eg car accidents), unless, before
bankruptcy, the sum of damages has been fixed by a court judgment or the
bankrupt has a written agreement with the other party
- student assistance/supplement loans.
2. Any new debts created on or after the date of bankruptcy.
Which debts continue after a bankrupt’s discharge?
Creditors with certain types of provable debts can both receive money from
the bankrupt estate and can also continue debt recovery action after a bankrupt
is discharged from bankruptcy, for example:
- Child support debts
- Maintenance
- Debts incurred by fraud
- Accumulated HECS (Higher Education Contribution Scheme)
debts raised before bankruptcy.
More information is available in the pamphlet: Debts and Creditors:
What happens to them if I go bankrupt?
A provable debt is an amount for which a creditor is entitled to
claim a dividend in bankruptcy
What happens to a bankrupt’s assets?
Assets or property are anything that a bankrupt owns, buys or receives. A
bankrupt’s interest in assets passes to the trustee.
Exempt assets
Some assets are exempt in bankruptcy, which means that bankrupts may keep
them, or keep up to a limited value. Exempt assets include:
- most ordinary household and personal items (eg furniture,
bedding and linen, electrical appliances, educational equipment)
- property used to earn an income (such as tools of trade) up
to a limit of $2,900 (indexed)
- vehicles (cars or motorbikes) used as a bankrupt’s primary
means of transport, up to a limit of $5,800 (indexed)
- life assurance and superannuation policies, up to the
pension Reasonable Benefit Limit
- compensation and damages for personal injury, and assets
bought with compensation proceeds
- some grants, including grants under the Rural Adjustment
Act or Farm Household Support Act
- property protected under the Defence Service Homes Act
- assets held in trust for another person.
Indexed – the amount regularly changes in line with the Consumer
Price Index or the base pension rate
Awards of a sporting, cultural, military or academic nature made to the
bankrupt, such as medals or trophies but not cash or jewellery, and claimed as
having sentimental value may be exempted by the vote of creditors.
Creditors who hold security over an exempt asset are entitled to take
possession of it if the bankrupt is in default.
Divisible assets
Assets that are not exempt are called divisible assets. A trustee may deal
with dividible assets. These assets may be in Australia or overseas, and in the
possession of the bankrupt or someone else.
More information is available in the pamphlet: Assets: What happens
to my assets if I go bankrupt?
What are contributions?
Contributions are regular compulsory payments from a bankrupt’s income to
their trustee to repay creditors.
At the start of a bankruptcy, and at each 12 month interval during
bankruptcy, the trustee makes an assessment of a bankrupt’s contribution
liability.
Every bankrupt is assessed, and if their income exceeds a certain threshold
(level) they must pay contributions. Low income earners are not required to pay
contributions.
More information is available in the pamphlet: Income Contributions:
Will I have to make payments from my income?
What are the duties of a trustee?
A trustee must:
- notify creditors of the bankruptcy and report on important
matters
- determine whether assets are available to pay creditors
- sell and recover assets for the benefit of creditors
- pay dividends to creditors when there is enough money to do
so
- ensure bankrupts fulfill their duties
- refer bankrupts who may have committed an offence to
relevant law enforcement authorities
What are the obligations of a bankrupt?
Bankrupts must assist their trustee to administer their bankruptcy. If they
do not they may be required to attend an examination to give information and
evidence under oath.
The Bankruptcy Act does not prevent a bankrupt from obtaining credit.
However a bankrupt must inform the credit provider of their bankruptcy if the
credit exceeds $4,029 (indexed).
The Bankruptcy Act does not prevent a bankrupt operating a business.
However bankrupts trading under assumed or business names must disclose that
they are bankrupt to every person they deal with.
Do I have to attend meetings of creditors?
The trustee may convene a meeting of the bankrupt’s creditors at any time.
Creditors may request in writing that the trustee convene a meeting. However,
if the creditors making the request are less than one-fourth in $ value of the
creditors, they must lodge with the trustee sufficient security for the costs of
holding the meeting.
The trustee will notify creditors of the time, place and agenda of the
meeting. Creditors may participate in a meeting in person or by telephone.
The trustee may require the bankrupt to attend the meeting to answer
creditors’ questions and give such information about his or her conduct and
affairs as the meeting requires.
How are trustee fees and expenses determined?
The trustee is entitled to fees and expenses for handling the bankruptcy.
ITSA as a trustee charges fees set by the Bankruptcy Act. ITSA’s fees
are normally at least $4,500.
More information is available in the pamphlet: ITSA Statutory Fees
and Charges
Registered trustees usually charge an hourly rate which is either
fixed:
- by creditors, or
- in accordance with the Bankruptcy Regulations.
Fees are usually paid from the sale of assets or a bankrupt’s income
contributions. If trustees do not receive enough money to pay their fees, they
are allowed to recover from the bankrupt a minimum fee of $1,331 (indexed).
A creditor may also request the Official Receiver to review a
registered trustee’s fees and costs if he or she is dissatisfied with their
claim. This is referred to as a ‘taxing of costs’. The request must be made
within 28 days of you becoming aware of the amount of the claim. The applicant
may be required to pay for the taxing and will be charged an hourly rate.
Trustees may also ask creditors to advance money to fund investigations where
creditors are likely to benefit directly from a successful investigation (eg to
recover assets). If any money is received by the trustee, creditors’ advances
are repaid before fees and dividends.
Will I receive a dividend?
A dividend will be paid to unsecured creditors if funds are received in
excess of amounts required to pay:
- the government realisations charge
- the trustee’s fees and expenses
- claims of priority creditors (eg employee wages).
If a trustee expects to pay a dividend they will notify the creditors and
give them time to lodge a proof of debt. It is important that creditors retain
sufficient evidence of their debt.
Can a bankruptcy be annulled?
A bankruptcy can be annulled (cancelled) when:
- the government realisations charge, trustee’s fees and
expenses and the creditors have been paid in full or
- An offer of composition or arrangement during bankruptcy is
accepted by creditors to satisfy their debts.
In rare cases, bankrupts may also apply to the Court for an annulment if they
think that they should not have been made bankrupt or they should not have
lodged a Debtor’s Petition.
More information is available in the pamphlet: Annulment: Can my
bankruptcy be cancelled?
Realisations charge is a Commonwealth Government levy on all
bankruptcies, compositions or arrangements. It is taken out before expenses,
fees and dividends.
When is a bankrupt discharged?
A bankrupt is normally automatically discharged 3 years and 1 day after the
Statement of Affairs was lodged with and accepted by ITSA.
If a person has been made bankrupt by the Court the Statement of Affairs was
probably lodged some time after the date of bankruptcy.
The period of bankruptcy may be extended to 5 or 8 years if the trustee
lodges an objection to discharge with ITSA. An objection is usually lodged
because the bankrupt has not co-operated with the trustee or there has been some
misconduct on their part.
More information is available in the pamphlet: Discharge: How and
why does my bankruptcy end?
A composition is an offer made by a bankrupt through a trustee to
creditors to finalise his or her debts
Where can I find information about specific bankruptcies?
Information about personal insolvencies in Australia is available from the
public record which consists of the National Personal Insolvency Index (NPII)
database.
Certain documents lodged with ITSA may also be inspected by debtors,
creditors and the public.
Any member of the public can:
- Pay information brokers of ITSA to search the NPII, or
- Search the document files if they pay a fee to ITSA.
Creditors wishing to find out details of a specific bankruptcy should speak
to the relevant trustee.
More information is available in the pamphlet: Searching the Public
Record
Where to contact us
Telephone 1300 364 785
ITSA website wwwitsa.gov.au
ITSA Offices
ACT
Level 2, NFF House, 14-16 Brisbane Avenue BARTON ACT 2600
Tel: 1300 364 785
Fax: (02) 6270 3608
email: itsa.canberra@itsa.gov.au
New South Wales
GPO Box 548 SYDNEY NSW 2001 Level 8, 135 King Street SYDNEY NSW 2000
Tel: 1300 364 785
Fax: (02) 8233 7891
email: itsa.sydney@itsa.gov.au
Queensland
Brisbane
PO Box 10443 Adelaide Street BRISBANE QLD 4001
Level 16, 340 Adelaide Street BRISBANE OLD 4000
Tel: 1300 364 785
Fax: (07) 3360 5466
email: itsa.brisbane@itsa.gov.au
Townsville
PO Box 1527 TOWNSVILLE QLD 4810 Level 1,
National Australia Bank Building 315 Ross River Road AITKENVALE OLD 4814
Tel: 1300 364 785
Fax: (07) 4727 0500
email: itsa.townsviIIe-0itsa.gov.au
South Australia/Northern Territory
GPO Box 2604 ADELAIDE SA 5001
Level 18, Grenfell Centre 25 Grenfell Street ADELAIDE SA 5000
Tel: 1300 364 785
Fax: (08) 8112 4305
email: itsa.adelaide@itsa.gov.au
Tasmania
GPO Box 850 HOBART TAS 7001
Level 4, ANZ Centre 22-26 Elizabeth Street HOBART TAS 7000
Tel: 1300 364 785
Fax: (03) 6221 7700
email: itsa.hobart@itsa.gov.au
Victoria
Level 10, Melbourne Central 360 Elizabeth Street MELBOURNE VIC 3000
Tel: 1300 364 785
Fax: (03) 9272 4900
email: itsa.melbourne@itsa.gov.au
Western Australia
GPO Box H536 PERTH WA 6841
Level 12, Durack Centre 263 Adelaide Terrace PERTH WA 6000
Tel: 1300 364 785
Fax: (08) 9268 1298
email: itsa.perth@itsa.gov.au
More information pamphlets are available.
See the website or contact ITSA for a complete list.
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