One of the major benefits of undergoing the process of bankruptcy is that the bankrupt is released from all of his or her debts once they are discharged. This gives the bankrupt on opportunity start their financial life again with ‘a clean slate’. Well that is almost true. The bankrupt is discharged from a whole range of their debts under section 153.
153(1) Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.
Exceptions to this general rule are set out in subsection 2. These debts will not be automatically released upon discharge. The debts of interest in this article are detailed in paragraph (c) of that subsection:
153(2) The discharge of a bankrupt from a bankruptcy does not:
(c) subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order;
A maintenance agreement is defined as:
(a) a maintenance agreement (within the meaning of the Family Law Act 1975 ) that has been registered in, or approved by, a court in Australia or an external Territory; or
(b) any other agreement with respect to the maintenance of a person that has been registered in, or approved by, a court in Australia or an external Territory;
but does not include a financial agreement within the meaning of the Family Law Act 1975 .
A maintenance order is defined as:
(a) an order relating to the maintenance of a person, including an order relating to the payment of arrears of maintenance, that is made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth; or
(b) an assessment made under the Child Support (Assessment) Act 1989 .
A bankrupt with these liabilities has the right to apply to the Court to have these debts released upon discharge from bankruptcy. I have never seen the material on any such application so cannot list what criteria would be necessary to have such an order made. Bankrupts should seek legal advice on this matter. Without such an application, all of these maintenance liabilities – with the exception of debts arising from a parentage overpayment order – will survive the payer’s bankruptcy.
153(2A) The Court may order that the discharge of a bankrupt from bankruptcy shall operate to release the bankrupt, to such extent and subject to such conditions as the Court thinks fit, from liability to pay arrears due under a maintenance agreement or maintenance order.
After a bankrupt is released from bankruptcy, Child Support Agency can collect the remainder of its debt. But during the bankruptcy the Child Support Agency is still able to take enforcement action for any child support or spousal or child maintenance arrears that accrued before the payer’s bankruptcy. This action may include:
- Enforcement action against any property which does not vest in the trustee. However, this property is usually of little value;
- Administrative collection procedures, being the use of specific powers such as “tax intercepts, salary deduction, payment arrangements and deduction of arrears from salary”; and
- Claiming in the estate for a dividend for the debt and any late payment penalties which accrued up to that date and amounts recoverable from the payer through a registered parentage overpayment order.
One of the exceptions to the automatic release provisions are debts under a parentage overpayment order. This is defined as an order under section 143 of the Child Support (Assessment) Act 1989 requiring a former payee to repay to a former payer a specified amount of child support for a child of whom the former payer is not the parent.
Bankrupts with Child Support debts should be aware that bankruptcy will not eliminate most of these debts and that the Child Support Agency has the right to pursue these debts during the bankruptcy and after discharge.