Voluntary bankruptcy should not be a rushed decision. Most people can see it coming for months or even years, and some will try and take precautionary measures to protect themselves as much as possible. For the common person his only makes sense, however, we need to be aware of some very strict bankruptcy rules.
This post tries to explain some of the rules, in particular rules about superannuation contributions or property “gifted” to family or friends prior to bankruptcy.
Unfortunately, some people try to get clever and hide or transfer assets to family or friends prior to filing for bankruptcy. In a series of recent high profile bankruptcies we have seen that the debtors have tried to put assets out of the reach of their creditors.
The Australian bankruptcy laws anticipate this type of behaviour and in certain circumstances these transactions can be reversed for the benefit of creditors.
For example, if you have made large and unusual contributions into your superannuation fund (whilst you were insolvent) and shortly before you became bankrupt then your Trustee in Bankruptcy will carefully review these contributions. If the Trustee in Bankruptcy is of the view that the contributions were made to defeat creditors then the Trustee is able to make an application to court and have the contributions paid into the bankrupt estate.
In a recent case we observed that the debtor (the person who later became bankrupt) transferred a property worth $6.4million for mere $1 to his wife shortly before bankruptcy. In this case the Trustee in Bankruptcy has publically reported that he will commence proceedings to reverse the transaction as it was a transaction to defeat creditors.
If the Trustee in Bankruptcy is successful in reversing this transaction, the trustee can then object to the bankrupt’s usual discharge from bankruptcy and apply for the bankruptcy term to be extended up to 8 years. This means that the debtor will be bankrupt for 8 years instead of the usual 3 years.
If you are considering bankruptcy and have assets you need to be aware that you cannot imply “gift away” these assets to family or friends.
If you or your spouse are contemplating bankruptcy and you want to understand how bankruptcy is likely to affect your superannuation, then call us today on 1800 462 767 to discuss your options. Our toll free telephone line is open 24 hours everyday / 7 days a week.
All calls are free, entirely confidential and if required, anonymous.