Bankruptcy In Family Law

If you are involved in, or are commencing, family law proceedings, and either you or your spouse become bankrupt, you may be concerned as to what this means for the division of your assets. The Bankruptcy Act 1966 allows for the family court to make orders on matters regarding property settlement, child support and spouse maintenance (and enforcement of these). Pre-action procedures, such as mediation, also do not apply when a party to the proceeding is declared bankrupt.

Bankruptcy is defined by section 5 of the Bankruptcy Act 1966 as a person:

1. Against whose estate a sequestration order has been made, or
2. Who has become a bankrupt because of a debtor’s petition.

Once an individual is declared bankrupt, their property becomes vested in a trustee. This excludes some things such as motor vehicles up to a certain value and most household goods. The trustee will then distribute the property accordingly amongst creditors, being those people who are owed a debt by the bankrupt. Once a party is declared bankrupt, the trustee may be joined on into the proceedings as a party, precluding the bankrupt party from making submissions about property vested in the trustee. They may still, however, make submissions in relation to property vested in the other party. A person must notify the courts as soon as possible once they are declared bankrupt.