Are a bankrupt’s assets their own?
Under the recently determined Di Cioccio vs. Official Trustee in Bankruptcy, the Federal Court determined that when bankrupts use post-bankruptcy income to purchase nonexempt assets during their bankruptcy, such as shares, the assets will be held as after-acquired property, and as such will vest in their Trustee and be available to their creditors. Simply put, if the bankrupt earns more than the stated threshold and, after making their compulsory payments to their estate, uses surplus funds to purchase assets such as shares or property, these assets become the property of their Trustee.
The case that changed the position
Di Cioccio v. Official Trustee in Bankruptcy; the decision in this appeal considered afteracquired income and after-acquired property, with the final outcome contradicting previous case law Re Gilles Ex Parte Official Trustee in Bankruptcy (1993) of De Santis v. Aravanis. Under these previous cases, there was a special class of property created when a bankrupt used after-acquired earned income to purchase something, and hence this property would not vest in Bankruptcy Trustee. However, the court has now rejected this argument and the position of a special class of property. The court held that any property acquired by a bankrupt that would have been divisible if held at the commencement of the bankruptcy is divisible property when acquired during the bankruptcy and vests in the Bankruptcy Trustee.
What happens to a bankrupt’s Savings?
Can a bankrupt save his/her income (after complying with any income liabilities) and spend it on expenses but not assets? In the case of Re Gilles, it was held then any income saved after paying any income contribution liability did not vest as an after acquired asset. However, the recent decision of Di Ciocco v Official Trustee has now determined that such savings now vest in the Bankruptcy Trustee in accordance with Section 134(1)(ma) of Bankruptcy Act 1966.
Need to know more?
Contact Joshua Robb, Senior Manager at Shaw Gidley on 02 4908 4444 or via email at firstname.lastname@example.org