From the Institute of Chartered Accountants

Being declared bankrupt is a stressful event for any person. Added to this is the confusion over what happens next to their assets and belongings. When a person becomes bankrupt, the individual’s assets vest in a Trustee. However, the Trustee does not take everything.

It is important to understand that there are limits on what does and does not vest in a Trustee upon bankruptcy.  Generally, all property owned by a person or acquired during their bankruptcy, vests in the Trustee.  This is called “divisible property” and is sold by the Trustee for the benefit of creditors of the bankrupt estate.

Certain assets are totally protected or protected to a particular value, meaning that the bankrupt may retain these assets up to the value of the specified limit. These assets are known as “non-divisible property”, and may include household necessities such as beds and fridges and other ordinary household items, tools of trade, motor vehicles and the proceeds of certain compensation claims.

The limits as to how much of each asset a bankrupt is able to retain, are indexed and updated twice per year. Currently, a bankrupt may retain tools of trade, which also includes reference books, plant and equipment and professional instruments, to the value of $3,550. Similarly, a bankrupt is currently allowed to retain a vehicle with a maximum value or equity of $7,200, provided the vehicle is used primarily for transport.

There are also limitations as to what property is considered divisible. According to the Bankruptcy Act, personal property belonging to the individual that has a sentimental value and is identified by a resolution made by creditors before it is realised by the Trustee, may be retained.  Personal property may also be retained if it is of a kind detailed in the Bankruptcy Regulations, which provides for awards made to the bankrupt in recognition of sporting, military, academic or cultural achievements.

This Regulation does not extend to monetary awards.

A bankrupt’s money also vests in the Trustee. This includes money kept in all bank accounts held by the bankrupt. However, the Trustee may allow a bankrupt to retain some money to cover ordinary living expenses in the short term.

Property is not automatically returned to an individual following their discharge from bankruptcy. Upon discharge, which ordinarily takes place three years after initial bankruptcy, any property which the bankrupt disclosed in their Statement of Affairs, or which was acquired by the bankrupt after the date of bankruptcy and disclosed to the Trustee, will continue to vest in the Trustee for a further six years. Following this, if the property has not been realised, it may be returned to the former bankrupt.