Readers who have had any involvement in a bankrupt estate will know that certain property is not available to bankruptcy trustees. This non-divisible property includes property that is used by the bankrupt primarily as a means of transport. That property may have another use, but as long as its main use is in transportation for the bankrupt, it will fall under this exemption.
The exemption is limited to property to a value not exceeding an indexed amount (currently that amount is $6,500.00), but creditors may resolve that property valued above that indexed amount also be exempted under these provisions.
116(2)(ca) property used by the bankrupt primarily as a means of transport, being property whose aggregate value does not exceed the amount prescribed by the regulations or, if before the trustee realises the last-mentioned property the creditors determine by resolution a greater amount in relation to that property, that greater amount;
The first point to note is that the exemption does not apply only to motor vehicles, but to any property used ‘primarily as a means of transport’ by the bankrupt, including cars, motorbikes, pushbikes, or even horses. This definition is very wide as it does not state that the transport has to be used in the conduct of a business or to earn income or for any other specific purpose. Transport used simply to take the children to school may be exempt provided its value is below the indexed amount..
The second point is that the exemption does not apply to a single vehicle. The exemption is for property to ‘the maximum aggregate value of’ the exemption level (Regulation 6.03B(3)). That is, the bankrupt may retain numerous low value vehicles as long as their aggregate value is below that exemption level, or a higher value if resolved by creditors.
What happens when a bankrupt owns a vehicle that is of a higher value? And what happens if that vehicle is leased or financed?
The trustee is entitled to realise property vested in him, but he is required to pay money – up to the prescribed amount – to the bankrupt from the net proceeds. That is, even if the vehicle, or vehicles, sold are worth more than the prescribed amount, the trustee must pay the prescribed amount to the bankrupt.
The reasoning is that the bankrupt can use the money to obtain another means of transport. This requirement to pay money is limited to times when the bankrupt does not already have another means of transport. There is no requirement for the trustee to pay when the bankrupt is left with another vehicle – regardless of the value of that vehicle. That is, the trustee can sell the Ferrari and keep the entire proceeds and long as the bankrupt has a $500 clunker in the garage.
(a) property used by the bankrupt primarily as a means of transport is vested in the trustee; and
(b) as at the time when the trustee realises that property:
(i) no other property has remained vested in the bankrupt by virtue of paragraph (2)(ca); and
(ii) no other property has, because of a determination by the creditors under paragraph (2)(ca), revested in the bankrupt by virtue of subsection (2B);
the trustee shall pay to the bankrupt so much of the proceeds of realising that property as, when added to the aggregate of the amounts (if any) that the trustee has previously paid to the bankrupt under this subsection, does not exceed the prescribed amount within the meaning of paragraph (2)(ca).
The proceeds mentioned are the net proceeds from the sale of a vehicle. If the vehicle is financed or charged in some manner, the financier will be entitled to be paid out before any money is paid to the bankrupt or kept by the trustee. It is unlikely that a trustee will want to sell a vehicle that does not have sufficient equity to provide money to the estate. In those cases the trustee is more likely to disclaim the vehicle.