Are you considering bankrupting a person who owes you money?
Where a person falls in to debt that they are unable to pay, placing them in to bankruptcy can be a solution.
What is bankruptcy?
Bankruptcy is a process whereby a trustee is appointed over a person’s assets in order to distribute all of their assets ensure that all creditors (persons who are owed money) receive payment for debts owed. This can either be entered into voluntarily or a creditor may place a person into bankruptcy if they are owed $5,000.00 or more.
Typically once a person is placed into bankruptcy anyone who is owed money can make a claim (also called a proof of debt) to a person’s assets. The person being declared bankrupt must then provide a statement of affairs to the trustee which details all assets presently held. In these cases it is normal that only a partial amount of the debt is repaid, with the remainder forgiven upon being discharged from bankruptcy. If the creditor is unaware that the debtor is going to become bankrupt, the debts may not be repaid at all.
What effect does bankruptcy have?
If your debtor is unable to pay you debts owed, you are able to put them in to bankruptcy.
Once a person is declared as a bankrupt it can have severe consequences in relation to obtaining any form of credit, and the information will stay on a person’s credit file for a number of years. Bankruptcy can also have an impact on a person’s lifestyle, especially if they are a company director in which case they must cease to hold this position. An agreement they are party to, for example a joint venture, may also deem an event of default upon an act of bankruptcy and place them in breach.
The period of bankruptcy is initially three years from the filing of the bankrupt’s statement of affairs, however can be extended for a period of up to five additional years by the courts. It is important to note that these debts and obligations must be present at the date of bankruptcy in order for them to be discharged. Any debt or liability incurred after the date of bankruptcy is considered to remain owing.
Which types of debts are discharged upon being declared bankrupt?
Typically debts that related to standard money owed to any creditor are discharged upon being declared bankrupt, however as noted above, the liability for this debt must be incurred prior to the date of bankruptcy. Certain types of debts are not discharged upon being declared bankrupt and the obligation to pay this money remains.
Section 82 of the Bankruptcy Act 1966 provides an exhaustive list of debts that are not discharged, which are referred to as ‘non- provable debts’. These include:
- HECS debt;
- Court imposed fines or penalties;
- Maintenance agreement obligations under the Family Law Act 1975 ;
- Money owing for breach of a civil penalty provision under the Corporations Act 2001; and
- Money owing under relevant proceeds of crime legislation.
How we can help
At Streten Masons Lawyers we can help if you are currently owed money by a person who you fear may become a bankrupt. We can also assist if you are owed money by a debtor and want to initiate bankruptcy proceeds against them. Call our office on (07) 3667 8966 to find out more about how we can help you.