The basics of Bankruptcy and Family Law – Part II

This post is the second of a two-part series about Bankruptcy and Family Law. We recommend you read Part 1, which you can find here.


There can be a difference between the date of bankruptcy and commencement:

  • ‘The date of bankruptcy’:
    • When the Debtor’s Petition is accepted by the Official Receiver, or when the Sequestration Order is made; and 
  • ‘The date of commencement of bankruptcy’: 
    • is most often connected to the date upon which the earliest act of bankruptcy was committed and is determined by reference to s115 of the Bankruptcy Act.


When is the bankruptcy discharged?

  • The ordinary discharge date for a bankruptcy is at the end of the period of 3 years being the later of:
    • the date on which the bankrupt filed his or her Statement of Affairs; or
    • the date of commencement of that section;
  • If there is no Statement of Affairs filed, a bankruptcy is never discharged under s149 of the Bankruptcy Act.


What happens immediately to property?

  • Under the Act ‘property’ has very wide definition:
    • Real or personal property of every description, whether situated in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. (see s5 of the Bankruptcy Act).
  • An immediate consequence of a person being made bankrupt is that the bankrupt property vests in their Trustee in Bankruptcy:
  • There are only certain exclusions with reference to ss58 and 116 of the Bankruptcy Act.
  • Property acquired by an undischarged bankrupt also vests in their Trustee in Bankruptcy. 
  • Once discharged, future property no longer vests in the Trustee.


What’s not included?

  • Property does not include income.
  • Definition of income see Bankruptcy Act – see s139L income (a very wide definition). 
  • Instead of vesting in the Trustee, income during the undischarged period will be required to be paid to the Trustee above the prescribed threshold.
  • Potential rental costs of living ‘rent-free’ with relatives or friends can be classed income of a bankrupt.
  • Income which you attribute to someone else will also be classed as your income. 
  • Payment of legal fees by a third party can be classed income of a bankrupt.


If you would like to know how this applies to your situation, please call us now on (08) 6381 0208 or fill out this form to schedule your first 30-min free telephone appointment.

Posted in: Property & Financial  Tips