For people who are interested in how bankruptcy works, but don’t want to read a technical analysis, we have put together a few interesting tasters.
- Bankruptcy trustees identify apparent bankruptcy offences…but it’s the regulators who decide whether a prosecution is warranted.
- Don’t confuse a bankrupt’s discharge with the end of the bankruptcy. Discharge usually happens after three years and relates to control over the bankrupt personally, but the identification and realisation of assets can take place over many years after discharge.
- A person can be bankrupt more than once at the same time. This occurs when an existing bankrupt incurs further debts before discharge and becomes bankrupt as a result of those additional debts. Obviously special rules apply in such cases.
- A ‘preferential payment’ occurs when a debtor make a special payment to a creditor before bankruptcy. A trustee can recover such as payment for distribution to all creditors. But there is no restriction on a bankrupt using his or her income during the bankruptcy period or after discharge to voluntarily pay any creditor(s) they please. The bankrupt or ex bankrupt does not have to deal with creditors equally and a trustee cannot interfere with such payments.
- There is no obligation under the Bankruptcy Act for a bankrupt to tell his or her employer that they have become bankrupt. Of course employment is subject to a contract of employment and that may give rise to such an obligation.
- Debts that are ‘provable’ in a bankruptcy and get released on discharge include taxation debts, provided that the outstanding returns are lodged and assessed before discharge. Assessments issued after bankruptcy for pre-bankruptcy income tax debts can still be collected from a discharged bankrupt.