Breaking it down on bankruptcy
WHEN a relationship breaks down, the law generally requires the couple’s debts to be paid from their property or assets.
However, things quickly become complicated if one of the spouses becomes bankrupt.
If you are the bankrupt spouse, most of your property will be placed into the hands of what is called the “trustee in bankruptcy”.
A trustee in bankruptcy takes responsibility for the financial affairs of a bankrupt person.
You will be allowed to keep certain assets such as necessary household goods, superannuation, tools of trade to earn income (up to a value of $3650) and a car (up to a value of $7500) but otherwise you can expect the trustee to liquidate any assets you have to pay your creditors.
The Family Court may allow the trustee in bankruptcy to be joined to your family law proceedings if the Court is satisfied that the interests of your creditors may be affected by the proceedings.
Once the trustee in bankruptcy is joined as a party in your family law proceedings, he or she effectively ‘steps into the shoes’ of the bankrupt spouse.
This means the bankrupt spouse will lose their right to make submissions to the Court regarding the assets and property that are now in the hands of the trustee in bankruptcy.
If you are the non-bankrupt spouse, you need to be aware that the Family Court may also make orders about property that is now in the hands of the trustee.
When making such orders, the Family Court will balance your claims to matrimonial property as a non-bankrupt spouse against the competing interests of the creditors of the bankrupt spouse. This is a complex area of law. Either way, seek early legal advice.