One year bankruptcy and other changes – updated and corrected

[commentary of 10 August 2018 corrected and updated as at 14 August 2018].

With parliament having resumed on Monday 13 August, we may see the debate on the one-year bankruptcy bill,[1] although not, it seems, the debt agreement bill.[2]

While that Bill was listed for debate on the evening of 13 August, it was not reached, and the Senate is now debating the Restoring Territory Rights (Assisted Suicide Legislation) Bill 2015, a private member’s bill, which is likely to continue in debate for some time.

The rather strong debate concerning the reduction in the period of bankruptcy to one year from three belies the few amendments to the Act made by the Bill, replacing ‘three’ with ‘one’ in s 149 being an example. It does mean that a person is free of the restrictions of bankruptcy – on overseas travel, credit disclosure, after-acquired property – after the one year, though with continuing obligations to pay income contributions, if assessed.

The new 10th edition of Keay’s Insolvency has incorporated all of the new one-year bankruptcy provisions, qualified by the comment that they were at the time of publication, and remain, not yet law.

A delay in the reforms to debt agreements may be unfortunate, although there does not seem to be much policy cohesion between the two Bills.

Other Bills affecting bankruptcy are the Civil Law and Justice Legislation Amendment Bill 2017 which would amend s 35 of the Bankruptcy Act to clarify that the Family Court has bankruptcy jurisdiction in circumstances where a trustee applies to the Family Court to set aside a financial agreement under ss 90K and 90UM of the Family Law Act.  Given the pending changes to the Family Court, these changes may or may not be needed.

The other Bill became law in June 2018, as the National Redress Scheme for Institutional Child Sexual Abuse (Consequential Amendments) Act 2108, which has added new paragraph 116(2)(ga) to s 116(2) of the Bankruptcy Act, providing, as an item excluded from being divisible property:

“(ga)  a payment under the National Redress Scheme for Institutional Child Sexual Abuse Act 2018 to the bankrupt (whether before or after he or she became a bankrupt and whether or not he or she is the person who suffered the sexual abuse to which the payment relates); …”

The National Redress Scheme for Institutional Child Sexual Abuse Act 2018 has a minor but important bankruptcy element, that any redress payment under that Bill to a person who is bankrupt is “absolutely inalienable, whether by way of, or in consequence of, sale, assignment, charge, execution, bankruptcy or otherwise”: s 45.

That ancient drafting may have come from NSW’s 1900 Old-age Pensions Act, that the pension, being for the personal support of the pensioner, is to be “absolutely inalienable, whether lay way of assignment, charge, execution, bankruptcy, or otherwise”.

Section 45 and section 116(2)(ga) somehow sit together.

The difficult consequence of the interpretation given to bankruptcy law in Di Cioccio,[3] – that property bought by a person during their bankruptcy with their free income passes to their trustee – might catch such moneys, inalienable or otherwise.

That is an issue that needs legislative attention.

Thank you to the Attorney-General’s Department for bringing the need for that correction to my attention.


[1] Bankruptcy Amendment (Enterprise Incentives) Bill 2017

[2] Bankruptcy Amendment (Debt Agreement Reform) Bill 2018

[3] Di Cioccio v Official Trustee in Bankruptcy [2015] FCAFC 30; but see Gittins v Field [2018] FCA 976.

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