When someone becomes bankrupt their ‘divisible’ property vests in their trustee in bankruptcy. Divisible property is generally all of the bankrupt’s assets, except for certain classes of household items, tools of trade, means of transport to a certain limit, and certain other assets. These particular items are – to state the obvious – non-divisible property.
This classification of divisible and non-divisible property applies to all assets owned by the bankrupt a the time of the bankruptcy. But what about property that the bankrupt gets – acquires – after the date of bankruptcy? Some of this property will be exempt (non-divisible), but some will not.
The concept of After-Acquired Property is set out in section 58 of the Bankruptcy Act:
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
It provides that property acquired by the bankrupt while they are still bankrupt vest in the trustee, and unless that acquisition is notified to the trustee within 14 days, it can never revest to the bankrupt (section 129AA).
The two best known types of property that vests after acquisition are:
- Prize Winnings (OK, this does not happen often)
- Distributions from Deceased Estates – Inherences
Bankrupts that win money or other property lose that property to the trustee. Hopefully they would win enough to annul their bankruptcy.
Bankrupts that inherit property will lose any property that is not non-divisible in the bankruptcy. That property will then become available to the creditors through the trustee.
The solution is for bankrupts not to purchase lotto tickets in their name (let someone else do it), and get people to change their wills to write the bankrupt out during the bankruptcy. They can change their wills again after the bankrupt has been discharged.
One more circumstance deserves discussion. This situation occurred recently in a bankruptcy handled by the Brisbane office.
A wife became bankrupt. The husband was not bankrupt. There was some equity in their residential property, and this was sold by the trustee to the co-owner husband. The couple then separated and later divorced and the wife proceeded with a property settlement application while she was still a bankrupt.
The family court awarded the house to the wife, but once it was in her hands it was after-acquired property (she was still a bankrupt) and it vested in the trustee. This was not the result that she wanted. The wife disagreed with our assumption that the property was ‘after-acquired’. Due to the limited funds involved, the matter was settled before it became a test case.
The underlying theme is that bankrupt’s have to be careful about what property comes into their hands during bankruptcy, as it may not stay there long. Bankrupts should take, or get other people to take, some action to avoid this occurring.