In Bankruptcy, provable debts are debts which can be claimed against you through the bankruptcy process. All creditors that are owed provable debts must submit and prove their claims to the trustee in bankruptcy. Creditors who prove their debts are also able to vote at meetings of creditors. A creditor who has a provable debt cannot continue recovery or legal action after you have become bankrupt. If the provable debt is not repaid through the bankruptcy process (by way of a dividend) the debt must be legally written off and cannot be pursued after you have been discharged from bankruptcy.

So the question must be asked – what is a provable debt in bankruptcy?

Section 82 of the Bankruptcy Act set outs what debts are provable in bankruptcy.

The most common examples of provable debts are:-

• Personal credit card debts as long as they were incurred before bankruptcy;
• Personal loans as long as they were incurred before bankruptcy;
• Trade creditors (ie if you traded a business as a sole trader these debt can be included as long as they were incurred before bankruptcy);
• Services provided before bankruptcy (like electricity, gas or telephone charges)
• Debts guaranteed (ie you may have provided a personal guarantee prior to your bankruptcy)

Non- Provable debts in bankruptcy

Some debts in bankruptcy are not provable, which means they cannot be claimed in a bankruptcy or in other words they will not be cleared by bankruptcy. This means that if you declare bankruptcy you will not be released from non provable debts and you will continue to be liable to pay for them even after your discharge. Many people who are struggling with their debts think that bankruptcy releases them from all debts. Unfortunately that is not always the case, so if you are considering bankruptcy it is important to understand which debts you will not be released from.

The most common examples of non-provable debts are:-

• Council & water rates
• Penalties and fines imposed by a Court
• HECS debts
• Unliquidated damages
• debts incurred by fraud
• Any amount payable under the proceeds of crime laws
• Student Loans
• Abortive writs, collection agents expenses
• Unenforceable laws

Council and Water Rates

Council rates & water rates are not provable in bankruptcy as they attach to the property for which the rates relate to. In other words they are secured against the property.

Penalties or fines imposed by a court

Fines or penalties imposed by a court are not provable in bankruptcy, which means you will continue to be liable to pay any fine or penalty imposed by a court.

HECS debts

Any debts generated under the Higher Education Support Act 2003 are not provable in bankruptcy, which means you will continue to be liable to pay any HECS debt.

Unliquidated damages

If you have pending court action against you, declaring bankruptcy prior to any court assessment of those damages are not provable in bankruptcy, which means you will continue to be liable to pay any claim for damages. If you have a claim for damages against you it is best to wait until that claim has been assessed by the court before filing for bankruptcy. The most common claim for unliquidated damages is where somebody has been involved in a car accident. If this has happened to you, it is best to wait until the damages have been assessed by the court and a judgement has been awarded.

Any amount payable under the proceeds of crime laws

Debts incurred under both state and Commonwealth laws, such as pecuniary penalty orders, are not provable in bankruptcy.

Student Loans

Student loans from youth allowance and Austudy are not provable in bankruptcy, which means you will continue to be liable to pay any student loan.

Abortive writs, collection agents expenses

Costs of abortive writs are not provable nor are collection agents’ expenses unless the debtor is liable under the terms of the contract.

Unenforceable laws

If a debt is not enforceable at law (ie it is an illegal activity) then the debt is not provable in bankruptcy, eg a debt due to a minor, an unlicensed bookmaker or a debt related to illegal purchases.

Due to the complex nature of bankruptcy laws and regulations you should only deal with a Registered Trustee in Bankruptcy who has the adequate qualifications, training and experience. Dealing with anyone else who doesn’t have the necessary qualifications, training and experience could be dangerous.

Here at the Australian Bankruptcy Service we have a Trustee in Bankruptcy on site who can assist.Call today to get free, professional advice on1800 462 767. Our toll free telephone line is open 24 hours everyday / 7 days a week.

All calls are free, entirely confidential and if required, anonymous.