In Overview of Debts in Personal Bankruptcy – Part 1, we highlighted the various types of debts in bankruptcy and discussed:
- Secured and unsecured debts
- Provable and non-provable debts
This week we will be discussing the following debts in bankruptcy:
- Extinguished and non-extinguished debts
- Debts relating to ongoing services
- Statute barred debts
- A Bankrupt is not liable to pay after the bankruptcy ends
- Most unsecured debts and shortfalls on secured debts that were incurred before bankruptcy are extinguished
- In effect, these debts end when the bankruptcy ends
Examples of provable debt which will be extinguished:
- Credit card debts;
- Personal and or business loans;
- Trade creditors (but not secured creditors) of the bankrupt estate;
- Unpaid rent and debt relating to property damaged when the bankrupt was a tenant.
- The Bankrupt will still have to pay after the bankruptcy ends
- Some debts that are not extinguished are still provable – creditor can participate in dividends and collect the balance after discharge
- Some debts are not extinguished and are not provable – creditor can still take action to recover the debts during and after bankruptcy
- Debts that do not end when bankruptcy ends
Examples of provable debt but not extinguished
- Court-ordered restitution (damages) amounts – if the amount was not fixed before the date of bankruptcy;
- Child support/maintenance – these debts are still payable during and after bankruptcy;
- Debts incurred by fraud – can still be pursed
Debts relating to ongoing services
- If not paid will cause the cancellation of service
- A creditor cannot take action to recover the debt but it can stop supply/service
- There are some debts that are provable and extinguished but that, if not paid, will cause the loss of service as a consequence of non-payment.
- This means that, although the creditor cannot take action to recover the amount owed at the date of bankruptcy, the Bankruptcy Act 1966 does not prevent the creditor from stopping service.
- Telephone contracts/plans
- Pay television
- School fees
- Motor vehicle registration
- Child care
Each state and territory has legislation on how long a creditor may take to recover a debt.
Generally, a debt will not be provable if the:
- Debt is more than 6 years old
- The creditor has not obtained a Judgment
- Throughout Queensland and the rest of Australia, the statute of limitations for debt is 6 years. The only exception to this rule is the Northern Territory, where it is 3 years
- Important – the statute of limitations is not a deadline for collecting the debt; it is a deadline for filing the relevant claim with the Courts.
- During the limitation period, a creditor has the right to sue a debtor for the recovery of the debt.
- If the limitation period expires, the debt becomes statute-barred.
- When a debt is statute-barred, it means that the creditor can no longer take legal action to recover the debt. Even if you were to file a claim, the debtor would have a complete defence because the debt would not be legally enforceable.
Limitation period from the date:
- The last payment was made; or
- That you admitted in writing that you owed the debt
Limitation Period increases after Court Judgment:
- 12 Years – QLD, ACT, NSW, NT, TAS
- 15 Years – SA & WA
An Important Message
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