The basics of Bankruptcy and Family Law – Part I

This post in the first of a two-part series about Bankruptcy and Family Law. Click here for Part 2.


Bankruptcy and family law

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts.

In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

But as we have covered elsewhere, bankruptcy and family law are not a match made in heaven. Why? For a number of reasons:

  • Because they are driven by commercial outcomes; and
  • The trustee is not influenced by Family Law equitable and fairness concepts.

Trustees in bankruptcy are not usually familiar, concerned, moved or motivated by such things as:

  • The emotional and commercial vulnerabilities inherent in the marital partnership;
  • The future needs of a party increasing the entitlement of one party to part of the matrimonial pool;
  • Sharing superannuation;
  • Using the net pool to calculate a distribution before the liabilities of creditors are considered; and
  • The concept of non-financial contributions having a relevant monetary value.

Here are the basic questions we often get around bankruptcy:


How does it happen?

One becomes a bankrupt either as a result of a:

  1. Sequestration Order being made by a Court of competent jurisdiction; or
  2. Debtor’s Petition being lodged by that person is accepted by the Official Receiver.

A Sequestration Order is only made where the Court is satisfied:

  • An act of bankruptcy is committed by the debtor; and
  • the Debtor had the required connection to Australia at the time when the act of bankruptcy was committed (see s43(1)(b) of the Bankruptcy Act).

Acts of bankruptcy are set out in s40(1) of the Bankruptcy Act. The most common is the failure to comply with a Bankruptcy Notice within the requisite time period (21 days after service of same).


How long does it last?

Once bankrupt, a Debtor continues to be bankrupt until they are:

  • discharged pursuant to s149(1) of the Bankruptcy Act – usually a period of 3 years; but
  • can go for up to 8 years where the bankrupt does not comply with their obligations pursuant to the Bankruptcy Act; or
  • their bankruptcy is annulled.


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