Bankruptcy Trustees have an important role comprising of statutory duties and principles, and to act impartially between creditors and the individual subject to the bankruptcy.
That does not, however, mean the Bankruptcy Trustee has to be viewed as the enemy.
Whilst Bankruptcy Trustees need to ensure the bankrupt individuals comply with the obligations imposed on them by the Bankruptcy Act and legislation, most often the Bankruptcy Trustees are able and willing to work collaboratively and assist the individuals in that process.
In practical terms, the Bankruptcy Trustee’s role can be simplified to secure/realise financial assets of the individual, determine the creditors and their debts, investigate financial affairs/dealings and make recoveries where required, distribute the estate pool of funds amongst creditors per the bankruptcy priorities, and the administrative filings and reporting associated with these tasks.
At Worrells, we are very conscious of the stress and mental health toll that individuals experience when dealing with their personal insolvency and the thought of bankruptcy.
We do, however, experience some cases where, despite our best efforts to collaborate and assist, the individual simply does not wish to engage, cooperator, and/or help themselves when dealing with us. This ultimately leads to significant time and often costs in the bankruptcy estate, often at the expense of creditors and also sometimes the bankrupt’s own pocket.
Case study of what not to do in bankruptcy
In one recent estate which has just finalised, we had an individual who was make bankrupt by court order, and whilst he wasn’t offensive or deliberately obstructive to us, his actions lead to a drawn-out three-year bankruptcy period and ultimately cost him a significant amount of money which he could likely have retained through an annulment (payment of all debts) of his bankruptcy.
It was his reluctance to collaborate with us on asset realisation dealings, or seek guidance from us prior to taking certain steps, or at times simply following through with promises, that resulted in him being left with nothing.
In the first instance, the debt over which the bankruptcy was petitioned was only $44,800. In additional petition creditor’s bankruptcy petition costs of $6,000 (which is actually fairly modest) were added because he didn’t follow through with proposals to settle the matter.
Our preliminary investigations identified that his asset pool contained real property with equity initially sufficient to payout the petitioning creditor and his estate.
Initially, he advised that he had access to funds to pay out his bankruptcy. We provided him with the relevant amount numerous times, and he promised many, many times that he was paying, but ultimately, the funds were never forthcoming.
Don’t delay your statutory obligations & extend your bankruptcy.
He also did not comply, despite repeated requests from our office, to complete the compulsory Bankruptcy Form/Statement of Affairs (“SOA”) within the statutory period of 28 days from bankruptcy. Only after the bankruptcy regulator AFSA took legal proceedings did he do so. As a result, more cost was added to his bankrupt estate, and probably more importantly, his bankruptcy period ended up being 5 years, rather than the statutory 3 years.
Don’t withhold income information and delay contribution payments.
During his bankruptcy, he had a well-paying job in the mining industry, but he either did not provide, or was very slow in providing, income information to our office. As a result, more costs were added to the bankrupt estate. Additionally, he became subject to lump sum liabilities of income contributions to his estate under the statutory bankruptcy income assessment and contribution regime. Notably, his delay in lodging his SOA and the bankruptcy becoming 5 years, the amount of income contributions he was liable for and paid was 40% than it needed to be.
Don’t receive voluntary gifts during bankruptcy.
Also, over the course of the bankruptcy period, the individual was the recipient of gifted assets and monies from family members. Such gifts are deemed as after-acquired property under the provisions of the Bankruptcy Act, and as such, we were required to collect these for realisation in the estate. Had he sought advice from us or others, the timing of these gifts may have changed, and he may ultimately still have them.
Don’t impede or choose to be obtrusive with asset realisations
Ultimately, the protracted realisation of the real property was the highest cost to the bankrupt estate and loss to the individual. As above, the equity in the property was initially sufficient to pay out the petitioning creditor, the bankrupt estate (including costs), and provide some funds back to the individual.
It was my intention to work with the individual to achieve his desired outcome of retaining the property via a lump sum payment to the estate to purchase the equity and/or annul the bankruptcy. However, a lump sum payment was never received despite giving him countless opportunities, over a considerable period of time, to arrange that payment.
But instead, the bankrupt refused deal with us or provide access in relation to the property. Eventually, we had to take steps – again at the expense of the estate and the individual – to realise the property as follows:
Register us on the title as vested owners (in capacity as bankruptcy trustees)
Obtain vacant possession of the property whilst the bankrupt was being obstructive and requested on many occasions.
Arranged for a removalist to collect and place the belongings of the individual into storage because (despite multiple requests) he failed to remove all furniture and other personal items from the property.
Arrange for pre-sale and settlement maintenance work to be carried out on the property because it has been neglected.
We then were able to proceed with placing the property on the market and undertaking a sale campaign. After payment of realty costs and mortgage upon settlement, the anticipated level of equity was achieved; however, the legal costs and bankruptcy trustee costs incurred during the protracted process eroded the majority of that equity, and to a point, it was no longer sufficient to pay all creditor debts.
Self-inflicted loss of an annulment opportunity.
As you can see, this was a case whereby there were so many opportunities for the individual to have taken certain steps, sought advice, and/or been more cooperative/collaborative, and ultimately walked away with something in hand (and possibly an annulment of bankruptcy) to assist moving forward with his life. Instead, his actions and certain attitude towards the bankruptcy process cost him big time.
If you find yourself facing financial distress, contact a Worrells principal to talk through your options.
