This section explains debts and bankruptcy.
With certain exceptions, when the bankruptcy is discharged (or the court grants an annulment), a bankrupt is released from all unsecured debts incurred before the commencement of the bankrupcty.
Those debts included in the bankruptcy are often referred to as ‘provable debts’. Creditors for these debts are entitled to payment from the bankrupt estate but at the end of the bankruptcy period the bankrupt is released from the debt.
Bankrutpcy is for the benefit of the unsecured creditors of a bankrupt. Therefore, a secured debt like a mortgage is not affected by the bankruptcy of a person, although any shortfall between the sale of the asset and the debt is covered by bankruptcy as a provable debt.
Bankruptcy does not release a person from the following debts:
- debts incurred by the bankrupt since the bankruptcy
- debts arising from court fines or breaching bonds
- debts incurred by means of fraud or fraudulent breach of trust
- child support/maintenance
- Centrelink overpayments incurred as a result of actual fraud
- accumulated HECS (Higher Education Contribution Scheme) and HELP (Higher Education Loan Program) debts
- student assistance/supplement loans
- an amount payable under a proceeds of crime law
- interest accruing on a debt that is covered by bankruptcy for a period commencing on or after the date of bankruptcy
- unliquidated claims against the bankrupt not arising from breach of contract (e.g. claims arising from a motor vehicle accident in which the bankrupt was at least partly at fault). The event giving rise to the claim must have occurred prior to bankruptcy with the claim remaining unresolved at the date of bankruptcy. As a consequence, a debtor is advised to finalise this type of matter before becoming bankrupt.
A person remains liable for these debts even on discharge or annulment of the bankruptcy.
If a Centrelink overpayment occurs as a result of administrative error, it is included in debts discharged following bankruptcy.
A debt owed to the Australian Tax Office is released on bankruptcy, but the Tax Commissioner has the power to issue a Statutory Garnishee over wages. If the statutory garnishee is issued prior to the date of bankruptcy, it will not be released.
The Australian Financial Security Authority has a comprehensive table comparing types of debts, and the effect of bankruptcy on them. If you are unsure about your debt and whether a creditor can continue to demand payment for it, get legal advice.
Essential services, rates and traffic fines are all affected by bankruptcy in different ways.
A bankrupt with unpaid gas or electricity accounts may find that the service is disconnected until a security deposit is paid. A creditor cannot ask for a debt incurred prior to the commencement of the bankruptcy to be paid, before continuing to provide a service after the date of bankruptcy, so be careful if the electricity company insists on payment of arrears before reconnecting. Get legal advice, or you can lodge a complaint with the Energy and Water Ombudsman of South Australia.
Council Rates and Water Rates
Local councils have an automatic statutory charge over real estate when rates are not paid. When a property is sold, the council rates will be paid to ensure that the purchaser gets clear title, even when there might a shortfall on repayment of the mortgage. A bankrupt remains liable to pay the council and water rates for the property.
Failure to pay traffic or parking expiation fines can result in a suspension of licence order for a period of 60 days (Fines Enforcement Suspension order) and/or being prohibited from doing business with the Registrar of Motor Vehicles (Cessation of Business order). A Cessation of Business order is for an indefinite period and results in a debtor being unable to register or renew registration of a motor vehicle, obtain or renew a licence or conduct any other vehicle related transaction with the Registrar of Motor Vehicles.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.