Following on from recent posts it is important to remember that not all of a bankrupt’s property automatically vests in a trustee in bankruptcy.
A summary of the types of assets that do not vest in the trustee, and in turn are therefore not divisible amongst creditors, is set out in section 116 of the Bankruptcy Act and includes:
property held by the bankrupt in trust for another person;
the bankrupt's household property;
personal property of the bankrupt that has sentimental value for the bankrupt;
the bankrupt's property that is for use by the bankrupt in earning income by personal exertion, within certain limitations;
property used by the bankrupt primarily as a means of transport, within certain limitations;
policies of life assurance in respect of the life of the bankrupt or the spouse or de facto partner of the bankrupt;
certain superannuation payments, including under split orders following a family law property settlement;
the rights of the bankrupt to recover damages or compensation for (among other things) personal injury or wrong done to the bankrupt.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Wonder Stuff song ‘Welcome to the cheap seats’.
Recent posts have considered various aspects of the interplay between the Family Law Act and Bankruptcy Act.
In 2006, Federal Magistrate John Walters, released a paper titled 'Some Aspects of the Interaction of Bankruptcy with Family Law' which set out a number of the key factors likely to be relevant in balancing the interests of spouses and a trustee in bankruptcy.
A summary of the factors mentioned is as follows, in the context that the overriding objective is to effect a just and equitable division of property between the parties to the marriage while also taking into account the legitimate interests of creditors -
has a party to the marriage acted recklessly, negligently or wantonly with matrimonial assets and reduced or minimised their value;
the non-bankrupt spouse's knowledge of the events leading to the other spouse's bankruptcy, including (for example) to what extent, the non-bankrupt spouse has either benefited from, or contributed to, the bankrupt spouse's insolvency;
when and how a relevant debt was incurred by the bankrupt spouse, and whether, for example, the debt was incurred in deliberate or reckless disregard of the non-bankrupt spouse's potential entitlement;
the factual circumstances surrounding the commencement or continuation of the property settlement proceedings – including, the perceived objective reasons, such as any strategic or tactical plan or initiative designed, in some way, to insulate the assets of the family (or a member of the family) from creditors;
whether and in what manner the creditor pressed or pursued – directly or indirectly – their rights in relation to the payment of the debt prior to bankruptcy, or prior to the commencement of proceedings in the Family Law Court, and whether the creditor did so in a timely fashion;
the overall conduct of all relevant parties, including the making of full and frank disclosure of their respective financial positions at all relevant times;
whether the debts were incurred pre or post separation; and
the overall financial circumstances of the non-bankrupt spouse and the children of the parties during the period since the incurring of the relevant debt or debts, and at the time of the property settlement proceedings (including the effect on the non-bankrupt spouse and the parties' children of the orders proposed by the parties to the proceedings).
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the XTC song ‘Scissor man’.
,%20paper,%20rock%20%E2%80%93%20Family%20Law%20v%20Bankruptcy%20Act%20(part%20III)%20by%20Matthew%20Burgess.jpg "View Legal blog - Scissors (man)**, paper, rock – Family Law v Bankruptcy Act (part III) by Matthew Burgess")