Bankruptcy – Creditor’s Petition

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What is a creditor’s petition?

A creditor’s petition is where a creditor whose debt remains unsatisfied applies to the court to have a person declared bankrupt.

If the court grants the application, the order of the court is referred to as a sequestration order, and the individual is declared bankrupt at that time.

The creditor who applies to the court is referred to as the petitioning creditor.

Who will conduct my bankruptcy?

Once a person has been declared bankrupt, a trustee is appointed to administer the bankrupt estate.

The petitioning creditor may nominate a trustee to conduct your bankrupt estate. Only registered trustees in bankruptcy are eligible to provide a consent to act. The consent to act is provided to the court as part of the application.

If a consent to act as trustee has been filed prior to the sequestration order being granted, the trustee nominated will (in most cases) become the trustee of the bankrupt estate.

If no consent to act is filed by a registered trustee, the estate will be administered by the Official Trustee in Bankruptcy.

In certain circumstances, the Official Trustee in Bankruptcy may seek to transfer the bankrupt estate out to a registered trustee to take over the administration of the estate.

Why seek a creditor’s petition?

A creditor may seek to file a creditors petition when all other attempts to recover their debts from the individual remain unsatisfied.

What will happen to my assets if I am declared bankrupt?

The Bankruptcy Act provides for a number of asset classes to be exempt from the trustee to realise for the benefit of the estate. These asset classes are referred to as non-divisible property.

The following is a list of some (not all) of the categories of non-divisible property:

  • Necessary household furnishings and clothing.
  • Motor vehicles whose value is below the threshold.
  • Tools of trade whose value is below the threshold.
  • The value of the benefit held in superannuation.
  • Proceeds of compensation for an injury or a wrong done.

The threshold limits have not been listed above as they are amended every 6 months.

An interest in real estate is an asset that the trustee in bankruptcy can realise for the benefit of the estate.

If there is a joint owner of the property, in certain circumstances, an arrangement can be made for the joint owner to purchase the bankrupt estate’s interest in the property, without the need to vacate and sell the property.

Bankruptcy does not prevent a creditor who holds a valid security interest from repossessing or recovering assets subject to their security.

Is there a limit to how much I can earn whilst I am bankrupt?

There are no provisions in the Bankruptcy Act which prevent a person from earning above a certain amount.

Where the income of a bankrupt exceeds a certain threshold limit, the bankrupt is required to make a payment to the bankrupt estate from that income. This obligation is referred to as income contributions.

Income contributions are calculated based on the after-tax income of the bankrupt during the calendar year of their bankruptcy, (not a financial year).

The threshold limit to be applied to each estate varies depending on the number of parties who may be dependent upon the bankrupt for financial support. In most cases, this refers to children who reside with the bankrupt.

For every after-tax dollar that exceeds the threshold limit, the bankrupt is required to pay half of this sum to the estate.

A bankrupt’s income will remain liable to be assessed until they are discharged from bankruptcy, which in most cases will be 3 years from the date that their Statement of Affairs is accepted by the Official Receiver.

When will I be discharged from bankruptcy?

A bankrupt is entitled to be automatically discharged from bankruptcy after 3 years and 1 day of their Statement of Affairs being filed and accepted by the Official Receiver. 

After an individual is declared bankrupt by the court, the trustee of the estate will write to them seeking that they complete and return a number of documents. One of those documents is a Statement of Affairs.

This completed document is required to be filed with the Official Receiver. If the form is not completed correctly, the Official Receiver may reject the form requiring the deficiencies to be addressed.

After the Official Receiver accepts the Statement of Affairs, the bankrupt will be eligible for automatic discharge from bankruptcy 3 years and 1 day after this date.

Where a bankrupt has not complied with their obligations under the Bankruptcy Act, an objection may be filed by the trustee to prevent their automatic discharge from bankruptcy. If the objection is upheld, the discharge period may be extended by a further 2 or 5 years. This can result in a person remaining an undischarged bankrupt for a period of 5 – 8 years after their Statement of Affairs is accepted by the Official Receiver.

Having Insolvency Concerns?

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