This section provides information about the effect of a debtor becoming bankrupt on continuing efforts to recover a debt (1.1.D.60). It includes:
Act reference: FA(Admin)Act section 95 Secretary may write off debt
Policy reference: FA Guide 7.3.1 Writing-off a Debt
Entering into bankruptcy does not eliminate a debt. The debt however, ceases to be due and payable for the duration of the bankruptcy.
If there is a bankruptcy notice in place, Centrelink may take bankruptcy proceedings against the debtor by filing a Creditor's Petition in the Federal Court. This action should only be taken if, to repay the debt, the debtor has:
As an alternative to entering into bankruptcy, a debtor may enter into an arrangement under Part IX or Part X of the Bankruptcy Act. A Part IX agreement is an agreement between the debtor and his or her creditors. An arrangement under Part X can be:
While an arrangement under Part IX or Part X of the Bankruptcy Act is in place, no action should be taken to recover the debt by deductions. Centrelink may receive money from the debtor however, as a party to the arrangement under the Bankruptcy Act. If a Part IX or a Part X arrangement is in place or is proposed, specific advice should be sought from the Helpdesk on what action to take in the individual circumstances of the case.
Once a person has been discharged from bankruptcy, a debt under the FA law becomes irrecoverable at law and is written off if the debt:
Subsection 153(2)(b) of the Bankruptcy Act does not release a former bankrupt from debts incurred through fraud. A debt incurred by fraud is not specifically irrecoverable under the A New Tax System (Family Assistance) (Administration) Act 1999, as the onus is on the debtor to prove that the debt did not occur because of fraud.
Not all debts that were incurred by fraud will still be recoverable after a bankruptcy has been discharged.
Explanation: The circumstances of each case must be considered to determine whether the debt is fraudulent for the purposes of the Bankruptcy Act.
When there appears to be enough evidence to establish a case of fraud, it should be referred to the Helpdesk for specific advice as to whether the debt will remain recoverable after the debtor is discharged from bankruptcy.
Once a person is declared bankrupt, deductions cannot be made from their FA payments to recover the debt that arose before the date of bankruptcy.
Explanation: The A New Tax System (Family Assistance) (Administration) Act 1999 requires that a debt be 'due' to the Commonwealth in order to be recoverable. A debt ceases to be due and payable for the duration of a bankruptcy.
If deductions have been made from FA payments of a bankrupt person, money recovered during the period of the bankruptcy for a debt that occurred before bankruptcy should be refunded directly to the individual.
If money was recovered by means of deductions by consent from the FA of a person who is not the debtor, the money should be repaid to the person from whose payments it was deducted.
A complex situation arises when money has been recovered from a bankrupt by way of legal proceedings. This situation should rarely arise, as any legal proceedings should be discontinued once a debtor enters into bankruptcy. Cases involving recovery in these circumstances should be referred to the Helpdesk for specific advice.
If a garnishee notice (1.1.G.10) has been issued against a bankrupt person, money recovered during the period of the bankruptcy should be refunded.
If money was recovered by a garnishee notice issued in respect of the debtor's income, the money should be repaid directly to the person who was issued the garnishee notice, or to the individual.
Recovered money should be repaid to the trustee in bankruptcy, if it was recovered by:
If the money was recovered by a garnishee notice issued in respect of the debtor's property, and that property is not subject to the provisions of the Bankruptcy Act, the money should be repaid directly to the individual.
Example: A personal injury settlement.
Last reviewed: 12 August 2013