Katherine
Hi, everyone, and welcome to today’s webinar, Common Issues in Bankruptcy. My name’s Katherine
Bowden, I’m in the community legal education team with Margaret here.
Margaret Hi.
Katherine And I’d like to introduce Paul from the civil
team, who I’m sure you all know very well. I’d just like to begin today by acknowledging
the traditional owners of the land on which we meet, and pay our respects to elders past,
present, and emerging. Now today’s webinar, as you all know, is for
community legal education purposes only. I’ll run through some housekeeping slides. I’d
just like to check that everyone can hear us. So if you can hear me, please just raise
your hand. Okay, lovely, welcome to pop those down. I can see you can hear. So if you would
like any more information on bankruptcy you’re welcome to visit the information for community
workers and carers page on Legal Aid Queensland’s website. And technical help is available on
1-800-136-402. We’ve got two handouts for you. One if the PowerPoint slide. Another
has some very important contact details, which might come in handy, so you’re welcome to
download those now. We’d like to invite you to submit your questions
anytime as we go through the webinar, and then we’ll have some space at the end to go
through and answer all of those. Okay, now you might notice that we’re wearing a couple
of draggy jumpers today. So we would just like to support Brisbane Youth Service who
are raising awareness for homeless people who are young, under 18.
Okay. So we’ll run a poll, which area do you work in? Southeast Queensland, far north Queensland,
regional, or outside of Queensland? I can see there’s a really good mix today, actually.
We got a lot of you from outside of Queensland, so Paul will be able to let you know which
areas will apply for your area. We got a lot of people from regional and far north Queensland
as well, which is great to see and a lot from southeast. So close that off, and I might
share the results just for your own interests. Okay. One more poll. How would you rate your
knowledge of bankruptcy? Do you feel like you know a lot about bankruptcy already and
you’d like a refresher today? You’ve got good or limited knowledge? Or you don’t know much
about bankruptcy and that’s why you’re here to learn today? Again, a pretty good mix.
Most of you have limited to good knowledge, so I’m sure Paul will be able to help you
out with a lot of things. And again, I’ll share those with you for your own interest.
Okay, lovely. I’d like to pass over to Paul in civil justice services to run through the
presentation today. Paul
Excellent. Thanks Katherine. So, one of the things I’ll say just right at the beginning
about bankruptcy in general is, I’d like to acknowledge the work Financial Rights Legal
Centre from New South Wales and the Lismore and District Financial Counselling Service
for putting together the Bankruptcy Toolkit that I’m sure many of you are aware of. It’s
an excellent resource that if you’re not aware of it, please let us know and we can direct
you to where that is available for you to use and look at. So that’s a really important
place to start. The other thing I would say is, on the whole,
this presentation is aimed at those people who have probably a limited to good knowledge
of bankruptcy already following up from a previous, more basic bankruptcy webinar we’ve
done. To those people who already have an excellent knowledge please feel free to shoot
questions through to us because that’s probably the best way of you letting us know the specific
issues that you want to get out of this webinar and we can address them as part of the question
and answer process. But without any further ado, let’s move to the subjects that we’re
going to look at today. Basically, what I wanted to do today, was
have a look at the major different types of bankruptcy or debt agreement issues you guys
are likely to see. What happens to secured assets, how gambling gets treated, and what
sort of consequences can still occur after the bankruptcy has officially ended. And I
think that’s an important one because many of our clients think that once they’re discharged
from bankruptcy there’s nothing further the trustee can do, and that’s obviously not the
case, as I know some of you are aware. So just to remind you, those of you who’ve
not experienced bankruptcy issues before, bankruptcy’s one of those things whereby debtors
can be initiated either by debtors or creditors, and it’s a way for people who cannot meet
the debtor obligations to get a fresh start or find a way out of the very severe debt
problems that they find themselves in. The downside to that for those clients, is that
they will often lose control of their finances for the period of bankruptcy.
Now, many of our consumers in vulnerable circumstances actually don’t mind this because they say
things to me like, “Well it means none of the debt collectors can call me. They all
have to call the trustee.” Now, linked to that is the issue around hardship which many
of the financial counsellors listening in already do an excellent job in. But there
are some instances where hardship variations don’t solve the problem for the unique circumstances
of the client, and that’s why we end up talking about bankruptcy.
Alright. The issue I probably want to spend a bit more time on today is debt agreements,
because debt agreements are probably, in my view, the most misused of all the potential
bankruptcy options. Because they’re often marketed as debt consolidation, or they’re
often marketed as alternatives to bankruptcy. Now, the reality of it, is that they’re set
up under part nine. But the consequences are often very similar to bankruptcy, and in the
circumstances our clients find themselves in, there may not be any better option than
the existing bankruptcy. And we’ll explain that a little bit further as we go on. But
the other thing, and I think this is probably the most misunderstood thing by our clients,
is if you propose a debt agreement to a creditor or creditors that’s actually an act of bankruptcy
and can lead to you being potentially made bankrupt, if that debt agreement’s not accepted.
Alright. I’ll pass over to Katherine for another poll.
Katherine Okay, great. So just watch this one now, we’ve
got a true or false question. Personal insolvency arrangements are made with creditors to make
periodic payments or transfer property or money. So take a guess, true or false?
We’ve got pretty mixed answers coming through. We’re about fifty, fifty for true, false.
Let a few more people get their responses in but it’s really looking fifty, fifty so
far. Paul
And that’s kind of why I thought it was worth us talking about personal insolvency arrangements
because it’s probably not something that many community workers ever see. It’s probably
more bankruptcy and debt agreements they see out there.
Katherine Alright, well let’s get back the answer. Is
it true or is it false, Paul? Paul
Well, let’s move to the next slide. So, it’s actually true. Now, as I said, I would suspect
that not many of you out there would’ve actually seen one of these agreements because it’s
set up under Part 10. Similar consequences to bankruptcy, and they are where you can
agree to make periodic payments or transfer property or money. And in that context rather
than, I guess, having more restrictions on how you negotiate or how the debt agreement
will operate, these are set up with a view in mind of those people who probably have
a bit more negotiating power to deal with their debts. And the other issue as to why
you wouldn’t see them is the controlling trustees that are appointed to personal insolvency
arrangements are incredibly expensive. And in the context of our clients who don’t have
any money to begin with, it’s not something they can afford to enter into. But it’s just
worth being aware that there’s that third option out there that you will occasionally
see. Alright. The key thing I probably get asked
most about by most of our clients is, “What’s going to happen to my house? What’s going
to happen to my secured property?” And that can be a house, it can be a car. Occasionally
those people who help clients in WA or Queensland following the mining downturn, that might
include a boat or other sort of pleasure water craft or pleasure craft. That’s what they
want to know about. And the answer about secured assets, and I’ll focus on houses, is the trustee,
say on the title of your house, instead of it being Joe Smith owning an interest in the
house, it will be Joe Blogs, the trustee for the bankrupt estate of Joe Smith. And so what
happens in that sense is you lose your interest in the house to the trustee while you’re bankrupt.
That doesn’t automatically mean the house will get sold by the secured creditor. The
secured creditor still needs an act of default in order to sell the house.
But the reality of that is often people who are looking at going bankrupt are often in
a financial position whereby they’re behind on a lot of debts and that includes their
mortgage. So in that context what you see, if the secured creditor acts on the default,
the property will still end up being sold. If there is no default to act on it’s the
trustee who’s going to end up making a decision about whether or not that property should
be sold in order to pay towards the debts that the person has gone bankrupt on.
And I see a question around tools of trade, which in a way is linked to secured assets,
but we’ll just raise the issue now. In a bankruptcy you have a threshold value for your tools
of trade that you’re allowed to keep when you go bankrupt. The last time I checked the
threshold, tools of trade, I believe it was $3700. And that should be assessed on the
second hand value of those tools. So the view of AFSA is that if you have $3700 worth of
tools of trade, that should be enough for you to continue run your business.
That’s different to debt agreements, whereby the secured assets are not normally sold.
But again the key issue is whether or not you’re in default on that secured asset. And
the key bit to highlight there for cars, is remember that you have an entitlement to keep
a car to the value of $7800 in equity. So if you have a secured asset, a secured car
that’s worth $15000, and you owe $10000 on that car, can’t be taken by the trustee because
it doesn’t have equity in excess of $7800. Alright. Finally, PIAs and that’s the personal
insolvency arrangements. Assets don’t automatically vest in the trustee, however the reality of
those is that the proposal will often deal with those issues. And like I went through
before, you have the ability or a bit more freedom to try and negotiate an appropriate
arrangement in that context. The other issue, and I think for me this is
the key difference between bankruptcy and debt agreements, is around ability to work.
Bankrupts are disqualified from being a company director, debtors in a debt agreement are
not. The difficulty there for people is it’s not necessarily about the company director
being an issue, it’s for your clients who might be running a small business or might
need a licence to operate the business they’re doing. There are a number of professions where
you cannot run a business in that profession while you are bankrupt. And that can be a
good reason for those clients, if they can afford it, to go into a debt agreement.
Regarding the length of time for bankruptcies and debt agreement, bankruptcy usually lasts
three years and one day. Debt agreements are seen anywhere between three and five years.
If I see a debt agreement that’s going longer than five years, I have big concerns over
that because the reality is having somebody make a fortnightly payment for more than five
years in a row is asking a bit much of our clients who are in difficulty.
The other issue around this, and I know a number of you are aware of this, there is
a bill currently before the federal parliament is the Bankruptcy Amendment Enterprise Incentives
Bill of 2017. And one of the things it looks at is the possibility of reducing the length
of a bankruptcy from the three years to discharge you after just one year. That hasn’t yet passed
parliament, when I checked yesterday. It’s still before the senate. My understanding
is the committee that looked at the bill reported on the 12th of March and was overall supportive
of it. But until that gets passed we’re still in a position where the bankruptcy lasts for
three years. If that bill does get passed, my understanding is the transitional arrangements
of the legislation would mean that existing bankruptcies would also be subject to a one
year period before it can be discharged rather than the current three years. However, until
we get that legislation passed by both houses of the federal parliament the existing law
we’re still going with is that bankruptcies are three years and one day until the discharge
happens. Alright. The other thing worth knowing is
their round income. There’s no income taken out from debt agreements however you must
meet the fortnightly payments. Bankruptcy, there’s income thresholds which vary depending
on the amount of dependents that you have, as to whether or not you need to make an income
contribution. The reality is most of the clients I see don’t meet the income threshold and
so don’t make income contributions on bankruptcy. But it’s always important to check how that
works. The issue I have around debt agreements is
you have, often, people who are on a pension, they might be receiving Centrelink, they might
be on a DSP. In that context, I question whether a debt agreement where somebody’s agreed to
make this continual payment for a three year payment can actually achieve that when, let’s
be honest, their Centrelink income or the pension isn’t going to increase in any substantial
way. But expenses such as electricity, food, water, telephone, other basic necessities,
are usually going to increase quite substantially over that three to five year period, which
makes it very difficult for people to successfully complete a debt agreement when they’re on
a fixed income. My answer would probably be different if they’re going back to work and
are aware of a substantial income that they’re going to earn. But where they’re on a fixed
income already, my experience is they don’t successfully complete a debt agreement and
end up going bankrupt anyway whether it be a year or two years down the track. And given
people often want to be out the other side of these issues, those sort of circumstances
where you go a debt agreement, it fails, and bankruptcy will often cause our clients some
distress. And this slide just goes into what I was talking
about in a bit more detail. And we’ve highlighted the fact that payments are often unaffordable
and the issue of the fixed income, and we’ve highlighted the idea that client circumstances
are likely to change, and their expenses are likely to rise during that period. The other
thing, and I’ve touched on this briefly before, is that clients, and sadly I think it’s the
majority of clients I see with these issues, liken a debt agreement to a debt consolidation
loan. And a debt consolidation loan, and I’m sure
you guys understand this already, is where you consolidate all of your loans into a credit
product. It’s not a situation where you enter a debt agreement, even despite the advertising
which we will see out there that suggests you can easily consolidate your loan in this
way. The consequence as I said, is that most of these people will end up in bankruptcy.
Katherine Okay, another poll. So I’ll just launch this
one now. Alright, you’ve got, I guess three answers
to choose from: a debt agreement may not be the best option for your client if their income
is low enough that they would not have to pay income contributions in bankruptcy, they
are not a company director and do not want to be one, or both answers are correct.
I see some pretty mixed responses coming in here. I’m just giving you a few extra minutes
on this one. When a debt agreement may not be the best option
for your client. Okay it looks like the majority of answers
are in, I’ll share those with you now. And Paul?
Paul The answer is actually both, in the sense
that if you’ve got a low income, debt agreement is not going to help you because we think
it’s unaffordable. But it’s also an issue of if you don’t want to be a company director,
then that’s one of the few good reasons to go into a debt agreement. But I understand
why people just answered low income, because my experience with the type of clients I see
at Legal Aid is that I might’ve encountered two maybe three clients in the 10 years I’ve
been working, who’ve been concerned about the company director issue. It’s important
to still be aware of it because it is something that you will occasionally see.
I think we’ve covered that slide already, but I’ve put the detail in there for you to
take away as part of the slides. It sets up a nice statement there of four points as to
when a debt agreement may not be in your client’s best interest.
Now this is the other one, particularly the funding financial counsellors have got to
deal with gambling issues, that I suspect presents a fair bit. That’s where a client
has incurred some of the debt they want to go bankrupt on, because of a gambling addiction.
I’ll say right up front, my view about this issue, is what people are suffering from in
this space, is an illness, it’s an addiction like any other. But we need to be aware of
this section 271, which does say, if within that two years before you present the bankruptcy
petition, you’ve lost any of, or you’ve created any of that debt by reason of gambling or
speculation that was rash and hazardous, being gambling or speculation not connected with
a trade or business and you go bankrupt, there is a risk that AFSA could criminally charge
you, and potentially you could be subject to a term of imprisonment of up to one year.
Now the inspector general does have practise note, and I’ve given you the link in the slides
to that practise note. And for me, the nub of that practise note is, they’re not intending,
as a general rule to go after people who are a victim of an addiction. However, the reality
of the section is such, that I willing to go wary of people wanted to go bankrupt when
they’ve incurred some of their debt due to gambling.
So in that context, I’m always very clear with clients to spell out that this section
exists and that there is a risk that if they go bankrupt on debts incurred by gambling,
that AFSA could take a good look at it. AFSA for the benefit of our newcomers is the Australian
Financial Security Authority, who are the regulator who oversees this area, and that
includes the bankruptcies, and debt agreements, and the administrators who look after debt
agreements. If there’s specific questions about the gambling,
I think it’s important personally, that all clients are aware of this section, so that
they’re making a decision about whether to go bankrupt based on all of the information
and the potential or risks that go with going bankrupt on something related to gambling.
If there’s any specific questions about gambling, please shoot these through, because this is
a topic that I know does cause community workers some grief.
Alright, the other section I wanted to have a bit of a look at was what happens after
you’ve been discharged from bankruptcy. And when we say discharged, that can either occur
when the bankruptcy ends, and that’s usually we’re talking three years and one day. Or
in some rare circumstances, a bankruptcy can be annulled, where the debt’s paid off or
the debt was never actually there. Now my experience of annulments, for our clients,
is they’re almost never successful. And the reason seeking to annul a bankruptcy is almost
never successful, is that when you annul it you’ve got to pay the costs of the annulment
application, and you’ve also got to pay the trustee’s costs that they’ve incurred as part
of the bankruptcy. And the reality for our clients is affording to pay all of those costs
in addition to paying off all of their debts is not a realistic option. So most of what
we’re talking about occurs when the bankruptcy, through a discharge of the bankruptcy.
The only exception to that around annulments is somebody gets an inheritance usually. And
my experience with that is that’s very rare. I have actually had a couple of circumstances
where somebody’s been able to pay out the debt but they haven’t been able to afford
or pay out the trustee’s fees, so they haven’t been able to annul the bankruptcy.
Also, be aware that the trustee does have the power, say if the bankrupt leaves the
country, or if they do not cooperate with the trustee, to make an application to extend
the bankruptcy. Or similarly, if super contributions are made to defeat creditors, they have the
option of extending the bankruptcy again, as set out in the slides.
The issue around property is another one, and this has come up a bit at least in Queensland
around properties in mining towns where the property value dropped quite substantially
a few years ago, and my understanding is it’s also a problem particularly in Western Australia
following the mining downturn. Often what happens in this story, is the trustee will
decide not to sell the property during the period of the bankruptcy because to sell it
would not realise any equity and would in fact realise a loss. However, their power
to sell the property or deal with the property does not end when the bankruptcy is discharged.
As I’ve set out in that section 129 AA3, it sets out this idea that they’ve got up to
six years for the property to be re-vested from when the bankrupt is actually discharged.
That’s one of the things, at least is my experience, a lot of clients haven’t dealt with or haven’t
understood, that there are lingering effects to a bankruptcy that we should all be aware
of. We should all remind clients that just because they’ve been charged doesn’t mean
their responsibilities to talk with their trustee and for property to be dealt with
have ended. It is also worth saying that there’s a number
of debts that don’t end when a bankruptcy is discharged because you couldn’t prove them
in the bankruptcy and I set out a number of them there. Child support being a clear one,
and debt incurred by fraud is another. Some debts such as toll debts or court fines that
arise out of, well toll roads is a big one in Queensland at the moment, I know it’s a
big issue in New South Wales and Victoria as well. Some student HELP debts are another
one. The third dot point on that slide is one that
I think is a really big issue. And that is often you’ll see people going bankrupt because
they’ve been involved in a car accident and they’re being chased for the damage they caused
to the other car because they haven’t been able to afford comprehensive insurance. Be
aware that if the client’s going to go bankrupt, it’s important to quantity what that loss
is. Because if it’s not, there’s an argument that the debt can be still chased following
the bankruptcy and if somebody’s in that scenario, they really should get legal advice about
what their responsibilities are. The other thing I’d say, although it’s not
bankruptcy related, but is important to be aware of in that car accident space, is it’s
important to remember the general insurance code of practise actually has a hardship section,
it’s section eight, whereby they’re required to look at a person’s financial circumstances.
If they raise the issue they’re not in a position or won’t ever be in a position to be able
to pay a debt that they’ve incurred following a car accident.
Alright, I’m not going to go, I don’t think, into the annulment process in any great depth,
apart to say, as I’ve said earlier, that I almost never see an annulment being successful
because our clients can’t afford it. If you’ve got any questions about that process please
shoot them through to us and I can reply to you after the webinar.
Alright, we’ve got to the end of the slide show, which means Q&A.
Katherine So we actually had quite a few of you asking
some questions to Paul before the webinar started. So I might just let Margaret read
the first one out. Margaret
So Paul, if an individual applies for a personal bankruptcy and they’ve got a mortgage on their
home and it’s in both names, will that impose a risk of the wife, and/or the home they live
in? Paul
Yeah, it’s a really good question because I think it’s a question that comes up quite
a lot. And the answer is, when somebody goes bankrupt, the trustee then goes on the title
of property in their place, so it will appear as the owners of the property are the person’s
wife and the trustee of the bankruptcy. What usually happens in that case, is if the trustee
decides to sell that interest in the property, they will usually, but don’t have to, ask
the wife whether they want to purchase the bankrupt’s interest in the property. If their
wife in unable, they will often sell that half interest, or however big the interest
is, in the property, in the normal way you’d sell a house. So this risk, particularly to
the wife in that scenario, is you might end up with the wife continuing to own the property,
and somebody she’s never met owning the other half interest and that’s a really big risk.
Katherine Okay, Paul, I’ve got another question that’s
come through now. What happens with tax returns, if a client is affected with bankruptcy, do
they have any extra entitlements around tax returns?
Paul So I guess the starting point is around tax
debts. Tax debts are provable up to the date of bankruptcy, unless the tax office has issued
a garnishee notice, and then if they’ve issued a garnishee notice they can continue to recover.
My experience around tax returns, if there’s a tax debt, the tax return tends to be the
ATO’s. Because my experience is they tend to have first call because they’ve become
a secured creditor. Tax reruns otherwise will be treated, it’s my understanding, as income,
as part of the bankruptcy, and the trustee makes the call as to how that’s dealt with,
if we’re above the income threshold. Katherine
That makes a bit more sense. I might hand back to Margaret to read another couple out.
Margaret What’s the responsibility of the intended
bankrupt to notify anyone that they hold joint property with?
Paul The responsibility around going bankrupt is
it’s the creditors that need to know, not the person holding joint property. My experience
of what happens in that scenario is if somebody owns joint property, the trustee is usually
very good at letting people know that they now have the interest in the property and
the bankrupt doesn’t. Margaret
Are there any major changes that have come through since the first of July?
Paul Yeah and I’ve briefly mentioned this earlier,
there is a bill before Parliament, that’s looking at making some very good changes in
our view, around reducing the length of bankruptcies and other changes linked to that. The reason
behind that is it’s less punitive to people, the proposed changes and might allow small
business people who might have been down on their luck, a better opportunity to get that
contract earlier. Not passed in Parliament yet, though, it’s a watch this space to when
that legislation will commence. Katherine
Thanks Paul. When it comes to a discharged bankrupt, how long does a person have to wait
to get a home loan? Paul
Financial providers and their credit criteria, I think it’s probably a source of mystery
to all of us as to what they’re looking for when it comes to those sort of things. The
reality of a bankrupt though is, when you go bankrupt, there’s an entry made on your
credit report which will stay there for five years from when you’ve gone bankrupt as a
general rule. While that listing is on your credit report, you’re not going to get a loan.
Katherine I’ve gone through a couple more questions
that have just come through now. What do sole traders need to know about entering into bankruptcy?
Paul That’s going to depend. That’s going to depend
a lot on how they’ve structured their business. That’s going to depend on whether they’ve
given any personal guarantees for any of their business debts. It’s probably going to depend
on, what, if any, property assets they have in their own name. And so although it probably
sounds like I’m avoiding the question a little bit, it’s very much an individual circumstances
question there. That’s going to dictate what’s going to be important.
Katherine Thanks Paul. If you need any more specific
information there, you’re welcome to email [email protected] and Paul can
take a look at that for you. Paul
Absolutely. Katherine
Someone’s got a client that is bankrupt and they’ve still got credit during this time,
does that happen [unclear 00:37:16] Paul? Paul
The reality is, there’s no prohibition on somebody getting credit, while they go bankrupt,
or while their bankrupt. There’s an obligation if you’re seeking credit above a particular
threshold, the exact amount of that threshold escapes me, I’m sorry, that you have to disclose
that you’re bankrupt in your application for that credit.
Without knowing the particular circumstances of that case, I suspect that it was probably
for a smaller amount of credit, whereby the lenders made a decision that they believe
the person has the financial capability to pay it back without any substantial financial
hardship. If I’m a creditor, and I see a person doesn’t have much money and that they’re bankrupt,
I’m questioning whether that’s a particularly sound decision to lend somebody in that position
money when their experience would suggest that they’re in circumstances where they’re
going to find it hard to pay back. And any credit in that scenario is going to
have to be linked, still meeting the responsible lending obligations under the National Credit
Law, and you might have a very good justification, I think, of those responsible lending criteria
being met in circumstances where somebody’s bankrupt.
Katherine Yeah, absolutely. Paul, just going back to
the five-year record bankruptcy. Does the credit report, then, clear after five years?
Paul The credit report then, clears, but at the
moment, the National Personal Insolvency Index, once you’re a bankrupt, you remain on that
for… somebody described it to me the other day as you remain on it for perpetuity even
after you’re dead. I’ve never actually looked at the beginning of that index, but as I understand
it, it’s everybody that’s been bankrupt since the Commonwealth of Australia started, on
this list. But the reality is creditors tend to check the credit report. They don’t always
check the National Personal Insolvency Index. Katherine
Oh, okay. That’s interesting. Margaret, you’ve got another question there from one of the
attendees where they’ve registered. Margaret
Yeah. Just in relation to self-managed super funds and trusts, are they protected, or are
they deemed as income? Paul
Okay, so starting point around super is funds in a superannuation fund are protected in
bankruptcy, and are not available unless they are withdrawn prior to the bankruptcy, however
the exceptions to that are so you can’t, for example, be wanting to go bankrupt, and then
put the whole heap of your money into your superannuation fund and think that the trustee
can’t get at it. Because that’s something that’s designed to defeat your creditors getting
the money. That’s not okay. And similar rules that apply to self-managed
super funds, assuming they meet their criteria of a regulated super fund under the superannuation
legislation. Money that’s withdrawn after is usually okay, depending on how the superannuation
fund is structured. Katherine
Okay. Thanks, Paul. Just another question about Centrelink here, just give me one second
to read this one. That’s okay. Paul
The question has, in a sense, been answered by the person who asked it, but it’s probably
worth talking about for the benefit of everybody. Katherine
Yes, so I might ask the original question, even thought, Amanda, you’ve found the answer.
Centrelink income is protected in bankruptcy, but will this income be garnished to pay debts,
not extinguished by bankruptcy. Paul
Yeah, so the reality of it is the debts will be still payable once the bankruptcy ends.
Katherine Okay.
Paul And so in that sense, you’re quite right in
your conclusion that eventually, Centrelink income will be used to pay debts which are
not provable in bankruptcy. And it’s really important to remember that, because the Centrelink
income will be protected for the period of bankruptcy, but once the bankruptcy ends,
as our attendee identified, then it potentially could be used.
Katherine Okay, thank you Paul. We’ve had actually quite
a few questions come up about company directors, so I might run through a couple of these.
The first one is, does that mean that once the client is out of bankruptcy, they can
then become a company director? Paul
Look, there’s probably a legal answer to that, and there’s probably a practical answer to
that. In the sense of, while you’re bankrupt, you can’t be one. Once you’re discharged,
in theory, that prohibition’s lifted. The practical reality is, is if I’m appointing
a company director, and somebody’s been bankrupt, I’m probably thinking fairly seriously about
whether I want to appoint them as a company director.
So while that’s not a legal answer, I think the practicality is, once you have been bankrupt,
you might find it very hard unless you’re the one trading the company to get yourself
appointed as company director. Katherine
And Paul, the other question was are there restrictions around becoming a company director
while you’re in bankruptcy, and would that last the whole five years?
Paul Yeah, so while you’re bankrupt, you can’t
be one, is the short answer. Katherine
And that would be that five-year period. Paul
Well sorry, for the period of the bankruptcy, however long that lasts.
Katherine Okay. Alright, thank you Paul, I might jump
back to another… Margaret
Probably just the last one, if I have this correct, if someone is assisting a client
in completing forms and explaining terms and whatever, should they be doing that, due to
any legal ramifications? Paul
Okay, so, what I understand which we’ll do back here, is there’s a section on the bankruptcy
forms about where a person has helped somebody fill out the form, will often sign. Now, my
understanding and this is probably very much a service by service response, is that by
signing that document, you’re arguably in a sense saying that you’ve looked over the
documents, and you’re almost agreeing to what the client has put in there. Or saying you’ve
helped, they’ve explained it, and you understand what’s happening. Now, some services may view
that as a risk to what they’re doing because it might be viewed as going beyond the scope
of what they do. The reality of what all of us do, is either through advice, or helping
with forms, we do help people with bankruptcy. It’s probably a procedural question for your
own services, as to what your service is happy doing. And I suspect a lot of those services
have sought independent legal advice about what their own appropriate independent responses
should be, when it comes to whether they fill that part of the form out or not.
Margaret I’ve got one other question, this is a question
for myself particularly, in relation to the company directors, but also where does the
responsibility lie for people coming on to boards, and they may be under ASIC, they may
be other forms of incorporation. Whose responsibility is it for the declaration
of people’s financial circumstances, if they’ve been bankrupt or they’re currently bankrupt?
Because often it’s left to the individual to make that declaration.
Paul Look, I would have to double check the Corporations
Law to answer that question. Top of the head, don’t know. It’s a really good question though.
Obviously, there’s responsibilities around answering questions honestly regarding any
sort of application, or any sort of information you give people. But beyond that, I’m sure
it’s dealt with specifically in the company law. I just don’t know what the answer is.
Margaret Okay.
Katherine We’ve got a few people who were wanting a
little bit more clarification around tax. So, one of the questions is, what tax debts
can’t be claimed in bankruptcy? Paul
What taxes can’t be claimed? Katherine
Can’t be claimed. Paul
Okay, look, penalties imposed by the tax offers are provable, but if you’re at the point where
the tax debt’s seen you get court imposed penalties or fines, then my understanding
in the same way any other court fine isn’t provable in bankruptcy, the same thing would
apply there. Katherine
Okay, thanks Paul. And I know we might have gone over this, but it will be a good refresher.
What happens with personal tax debt in bankruptcy, not GST, but personal income tax debt on an
integrated tax account? Paul
I think that’s going to require some more information about the individual circumstances,
because that sounds like a very specific client related question to me.
Katherine Yeah.
Paul And I’m happy to go into that further with
somebody offline. Katherine
Okay, so just a reminder, if you’ve got specific client questions, the email address is [email protected],
and you’ve also got some more contact details in the handout there as well. All right, back
to company directors, we’ve got a couple of questions about company directors and employment.
So I wonder if we should spend a little bit more time on this, does the ban on being a
company director apply to being an office holder of an incorporated association?
Paul I’m going to need to look that up.
Katherine Okay.
Paul Don’t know.
Katherine So if you’d like to email us that question,
then Paul can look that up for you. And Paul, are there any other restrictions on employment,
for example if someone would like to work in a bank, after they’ve been discharged?
Paul Look, the restrictions on employment are very
much profession related, and very much dependent on what profession we’re talking about. I
don’t know what specific requirements the individual banks have around employment for
those things. I do know for example, that there are restrictions around certain types
builder’s licences that you can’t hold while you’re bankrupt.
And so it’s always a case for me, my advice usually in that scenario when people are asking
those questions is you need to go and ask your professional organisation what their
requirements are. Katherine
Yep, that makes a lot of sense. Just a reminder everyone that we’ve still got 10 minutes left.
So thanks for sticking around for the Q and A, if you’ve got a burning question, now’s
a great time to get it out there, otherwise, we might keep running through some of these
that have been asked online. Have we covered everything Margret?
Margaret I think we have, I think some of it, well
quite a lot of it, Paul has already covered in his presentation.
Katherine Okay, lovely, so we’ll stick to things that
are coming through now. So, what happens to rates, water and sewage, body corporate expenses
and the like, that are linked to reduced value properties?
Paul The obligation is still there to pay it, unfortunately.
In the sense that the property can be gone after by councils, or the body corporate.
The practical reality is… Katherine
What do people normally do in that situation? If they’re bankrupt, and they don’t have the
money to pay it, do they then start accruing debts?
Paul Look, not a question I’ve had come up, and
I’m not really sure why. Because it is something I would expect that would come up quite often.
So, I think that’s probably another one I’d have to go away.
Katherine Yeah. Okay, so again, please email the webinar’s
inbox. Paul
Really good question. Katherine
Yeah, and we can, if anyone does email us with their questions, we can send it back
to you digitally, or if you don’t mind, we can send it out more broadly, so that everyone
who’s listened… Paul
Yeah, what I would say about rates and water and sewerage is that the response of council
is very mixed, and it’s very dependent on individual councils as to whether they’re
willing to give longer term hardship arrangements to pay that sort of stuff back.
My experience with body corporates is very different, they are generally more willing
to sue people, go after property, even while people are in very difficult circumstances.
Katherine Okay, thanks Paul. Someone’s asking here,
if you are over the threshold, and pay some money towards your debt while you are bankrupt,
do you make higher payments after the bankrupt period?
Paul I’m not 100% sure what we’re driving at with
that question, in the sense that once you earn over the income threshold, the trustee
will take a percentage of that income and pay against the debt.
But if it’s a debt that’s in the bankruptcy, what happens on discharging the bankruptcy
is that provable debt isn’t there anymore, and you have no obligation to pay it any longer.
So if the person sending through that question would clarify exactly what you mean by higher
payments after the bankruptcy ending, that would be great, because if the debt’s included
in the bankruptcy, and is provable, once the bankruptcy ends, there’s no further obligation
to pay it. Katherine
Okay. Alright, so you’re welcome to get some more information, or email us that one, that’d
be lovely. Okay, someone’s got a question here. They’ve
got a bankrupt partner, has assets in their own name, so if you’ve got a couple, and one
partner is bankrupt, which is only in their name, what happens if there was a prenup in
the relationship, are both parties then responsible for the bankruptcy.
Paul I’m quite happy to acknowledge that my knowledge
of family law is next to zero. I would recommend you referring that person either to a private
family lawyer, or the relevant legal aid commission for advice around family law in that space
because I don’t think I’ve ever seen a prenup in a legal context, because I’ve never done
family law. Katherine
Yep, that’s right. So Paul is a civil lawyer, but yes. You’re very welcome to call the 1-300
line to speak to our family lawyers, or take Paul’s suggestions for referrals there.
Okay, lovely, so it looks like that may be all the questions we have today. Paul, have
you got any hot tips that you can leave the audience with, I know we’ve had a lot of really
valuable questions come through, but if you could just leave everyone with one or two
tips, what would they be? Paul
The couple of tips I’d say is, in the space collectively that we’re all in, I very rarely
see clients in circumstances where debt agreements are a good idea usually because they’re unable
to complete the debt agreement, and that has consequences down the track. And the second
issue is around this company director issue. We got a whole heap of questions around that.
Katherine We did.
Paul To be honest, I wasn’t expecting, because
it’s not something I see very often. But my rule of thumb there is if you’re wanting to
be a company director, bankruptcy rules you out of it. If there’s other specific issues
around that, then people should get specific legal advice about what it is they’re wanting
to do, so that they’re clear what their options are, before they make a final decision.
Katherine Yeah. Great tips Paul, Legal Aid Queensland
is always here to help, so you’re welcome to give us a call at any time, you’re welcome
to email the webinar’s inbox if you’ve got questions, and to those of you who have downloaded
the handout, you’ll see some really valuable contact information on those, so if you haven’t
done that yet, I’d recommend you do that now. Paul
And we welcome those inquiries to our email or phone number, so long as you don’t give
those contact details directly to clients. Katherine
That’s right, so it’s for your eyes only please. Alright, thank you everyone, and big thank
you to Paul for such a great presentation, and we had half an hour of questions today,
so it was obviously a very valuable topic to our audience, and we really appreciate
you presenting Paul, and everyone joining in with their questions today.
Paul Thank you.
Katherine Thank you, bye.