To be or not to be - bankrupt
Penelope Hill
Manager – MoneyHelp Consumer
Action Law Centre
Date
20 July 2016
Consumer Action Law Centre
MoneyHelp: 1800 007 007
[email protected]
www.moneyhelp.org.au
Learning Outcomes
You will have:
1. Consolidated basic bankruptcy law
knowledge
2. Explored application of bankruptcy as a
legal option to resolve debt
3. Understand provable debts and acts of
bankruptcy and their impacts on clients
4. Explored impacts of bankruptcy on
tenancy and employment and other areas
Session overview
1.
The general concept of bankruptcy
2.
How different debts are affected by
bankruptcy
3.
Advantages & disadvantages of bankruptcy
4.
Helping a client to fill in the Statement of
Affairs
5.
What happens after bankruptcy
6.
A brief overview of forced bankruptcy
How we view bankruptcy

What thoughts do you have if a person you
meet says they are/were a bankrupt?
Negative views of bankrupts
o
o
o
o
o
o
o
Failures
Criminals
Cheats
Reckless disregard of others
Poor managers
Irresponsible
Lacking discipline
Changing view of bankruptcy
o
o
o
o
o
o
Failed government safety nets
Irresponsible & predatory lending
Ill health, job loss etc
Changing economic conditions
Insufficient income
Access to justice
What is bankruptcy?
No money to pay debts
Wipe slate clean
Discuss
1.
What do clients generally understand
about bankruptcy before they have
discussed this with a financial counsellor?
2.
What are the 3 or 4 key ideas you would
like clients to understand about
bankruptcy after you have had your
discussion with them.
What is bankruptcy?
Bankruptcy is a legal process where people
who can’t pay their debts, have (most of)
their debts* legally released.
This release comes in exchange for forced
sale of certain property, possibly some
income contribution and an obligation to
follow certain rules for the period of the
bankruptcy.
Types of bankruptcy
Voluntary: voluntarily lodging a debtor’s
petition to become bankrupt
Involuntary: a creditor takes action via a
creditor’s petition in the Federal Court to have
you declared bankrupt by order of the Court
First step: Are there any other
options?
o
o
o
o
o
o
o
Challenging legality of some debts
Applying for compassionate waiver
Accessing super
Selling property
Informal arrangement with creditors
Debt agreement
Ignoring creditors
Should I bankrupt? How do the good,
bad & ugly impacts balance out?
Help your client to work out the
balance of good & possible bad & ugly
impacts for them.
Impacts – the Good
1.
2.
3.
4.
5.
6.
7.
Discharge of (most) debts
Income – protected (up to $x)
Sole trader ok (with some restrictions)
Harassment – stop
Legal action – stop
a)
Court
b) Sheriff
c)
Garnishee (except ATO)
Travel ok (with trustee permission)
Household property (& some other)– protected
Provable debts



Definition: section 82 of the B Act
 Yes - Unsecured debts
 No - fines
 No – HECS
 No – unliquidated damages
Creditor can give proof of the debt to
trustee for payment
Section 153, discharge wipes (almost all) of
the bankrupt’s provable debts
Is the debt wiped?
Wiped with no
poor
consequences for
Client or 3rd party
Wiped but
possible poor
consequences for
Client
Wiped but
possible poor
consequences for
3rd party
Creditor’s
enforcement only
stopped during
Bankruptcy term
No stay and not
wiped
Unsecured debts taken
out in the name of the
bankrupt only (provable)
Interest &
penalties on child
support
Costs
re fines
Large gambling debts
Rent
Utility
debts
Joint debts
Debts that have
been guaranteed
by 3rd party
Centrelink (if fraud)
Child support
Fines
Car accident debts where Secured debts,
no judgment &/or no
house, car, other –
settlement
tax (if garnishee)
Income

Bankrupts can retain all of their income if
their net income is below:
 0 dependants $54,518.10
 1 dependant $64,331.36
 2 dependants $69,237.99



3 dependants $71,963.89
4 dependants $73,054.25
over 4 dependants $74,144.62
Sole traders
o
Debtors are able to continue as a sole
trader with disclosure obligations:
•
•

If they are not trading in their own name
When they obtain credit of more than $5485
Warning: If the bankrupt wants to continue
to trade, seek help from an experienced FC
Garnishee (attachment of
earnings)
Court order up to 20% of net income paid
directly to the creditor
 These orders have no effect once you are
bankrupt
 **Exception: ATO but
don’t give up, there are
appeal avenues

Impacts – the Bad
DUTCH WIP(E)OFF
Impacts – the Bad
DUTCH WIP(E)OFF
D = Director
U = Unliquidated
damages, eg car
accidents with no
settlement or judgment
T = Travel overseas
C = Child support
H = HELP/HECS debts
W = wills
I = income
P = preference
payments
O = offences
F = fines
F = fraud
Unliquidated damages


Accidental damage to property or
person with no order or agreement
as to $ amount of loss
Most common eg is car accident
debt
Preference payments


Payments made to another creditor
6 months before the bankruptcy
Eg: paying school fees, paying a
relative
Impacts - the Ugly
U = Utility connection
N = Npii
C = Credit report
R = Rent
I = Insurance
P = Property
E = Employment
Rent - tenancy

Private




Tenancy database should not be
affected simply by the B
Is the client unable to pay rent & so
including this as a B debt?
Questions asked on applic forms
Public

Check the current DHS policies
Employment


Professional associations or
licensing bodies might impose
restrictions
See AFSA list for some of common
professions & who to contact




Electrician – licence
Real estate – licence
Accountant – membership eligibility
Builder - licence
Statement of affairs
o What is it? A legal declaration setting out:
o
o
o
o
o
ID
Contact details
Full details of assets
Full details of liabilities
Full details of business details (if applicable)
o Purpose?
o Checking income contribution
o Checking ID
o Statistics
Be particularly careful answering
these questions


Q 18A what do you believe is the
main cause of your B?
Q18C When did you first have
difficulty paying your debts?
Note: study the Toolkit for hints
on issues re other SOA questions
Debtor’s petition - process
P
C
P
• Prepare, prepare, prepare!
• FC takes full notes of advice to C
• Client completes 2 pages of Petition
• Client completes 20 pages of SOA
• Post or email to AFSA
What are your client’s responsibilities
after bankruptcy?
o
Make a note that you have advised your
client on their responsibilities during the B
o
o
o
o
Respond promptly to any trustee requests for
information
Inform trustee of address changes
Disclose to trustee any property acquired, eg
inheritance
Reasons for complying:
o
o
Makes the process smoother for client
An offence not to comply
Potential issues during bankruptcy
o
o
o
o
o
o
For most FC clients there are no problems
Being chased for a provable debt
Freezing accounts
Requesting permission to travel
Income contribution disputes or hardship
Sale of unprotected assets
Failing to disclose
Centrelink employee Karen English of Devonport was
prosecuted in the Magistrates Court on 19 May 2016,
for concealing property obtained during the period of
her bankruptcy.
Ms English became bankrupt on 22 March 2012.
On 14 July 2014 and 3 September 2014, Ms English
received $50,000 and $87,581.83 respectively into her
bank account, paid from the estate of her late father.
Ms English subsequently deposited the inheritance into
two term deposit accounts.
Voluntary bankruptcy review
Prepare
• Gather financial info
• Identify any other options
• Identify disadvantages
Help
complete
SOA
• Can client start the process?
• Assist with Q’s
• Check completed forms
Final bits
• Advise on
responsibilities
• What happens if
issues during B?
Case study: Sophie
1. What debts, if any, will be wiped by Sophie’s
bankruptcy?
2. What debts, if any, will not be wiped by
Sophie’s bankruptcy?
3. What will be the financial effect on Jane if
Sophie bankrupts?
4. How will the trustee deal with the jointly
owned house?
5. What will happen to Sophie’s car?
6. Will a bankruptcy affect Sophie’s employment
as a handyperson?
Forced bankruptcy - Creditor’s Petition
Think about
o What is the impact of bankruptcy like to be
on your client; good, bad or ugly?
o Does your client need legal advice?
Forced bankruptcy is
complex – speak to a
senior FC
Creditors Petition – some legal
terminology




Act of bankruptcy
Bankruptcy Notice
Creditor’s Petition
Sequestration order
Acts of bankruptcy
o A creditor must prove that a debtor has
committed an act of bankruptcy in order to
get a court order for bankruptcy
o 99.99% of the time, this is failure to
comply with a bankruptcy notice
o there are many other acts of bankruptcy &
these are listed in section 40 of the B Act,
see also p230 Toolkit
Session review - Quiz
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Your client works in a real estate agency and asks if she bankrupts, can she keep her job?
What information do you give her? Where do you suggest she looks for further information?
Your client runs his own building business, will bankruptcy affect his employment?
Your client has $10,000 in toll fines and $60,000 in credit card debt. He is 62 years old, has
no assets and is being harassed by debt collectors. Does he have options other than
bankruptcy?
Your client is worried that her mother will find out that she is bankrupt. Is this likely to
happen?
List 5 possible negative impacts of bankruptcy
Your client comes to you after he has bankrupted and says he has won $50,000 in Tattlotto.
He asks you if he can use part of the money to take his family on a holiday to the Gold Coast.
What do you tell him?
Your client is clearly a good candidate for bankruptcy given her assets, debts and income. She
has only ever heard about the negative view of bankruptcy and says she believes she should
pay her debts. You certainly don’t want to say anything that might be seen as pressuring her
into bankruptcy, however you do want to provide an alternative view of bankruptcy so she can
balance up the two views. What do you say to her? What notes do you keep on your file?
Your client is $3,000 in arrears with her rent. She also has $70,000 in unsecured loans and
wants to bankrupt. She wants to stay in her current rental, what should she do about the rent
arrears?
What should you do if your client comes to you saying he has just received a bankruptcy
notice?
Is a Centrelink overpayment amount provable in bankruptcy? Will your client have to pay the
debt back at the end of the bankruptcy?
Further information
1.
2.
3.
4.
5.
Bankruptcy Toolkit/ by Financial Rights &
Lismore District Financial Counselling,
2014
AFSA website – forms, Inspector-General
Practice Statements, Resources tab
[email protected]
Subscribe to AFSA PIR - Personal
Insolvency Regulator newsletter
AFSA news blog:
http://personalinsolvencynews.govspace.g
ov.au/
Questions????
Call us!
Consumer Action Law Centre
Level 6, 179 Queen Street
Melbourne VIC 3000
Worker Advice Line:
(03) 9602 3326
Rural access:
1300 881 020
Mon – Fri 10am to 1pm and 2pm to 5pm
Email: [email protected]