What does the term "Discharged Bankrupt" mean?

Introduction

Navigating bankruptcy in itself can be a complex journey. However, acquiring the status of 'discharged bankrupt' can provide formerly bankrupt individuals with some light at the end of the tunnel, so to speak.

In this article, we explain the term 'discharged bankrupt' and some key considerations when an individual is discharged from bankruptcy.

What is a discharged bankrupt?

The status of ‘discharged bankrupt’ signifies the conclusion of an individual’s bankruptcy period and relieves the individual from the burden of outstanding debts that were included in bankruptcy proceedings. These pre-bankruptcy debts then become managed and distributed by the trustee amongst the creditors involved in the bankruptcy proceedings.

The term 'discharged bankrupt' also means that the creditors included in the individual's bankruptcy can no longer pursue them for the debts owed and included in the bankruptcy. 

How do you become a discharged bankrupt?

In some instances, an individual can be discharged from bankruptcy automatically. An automatic discharge from bankruptcy typically occurs after three years and one day from the acceptance of the bankruptcy petition or following the submission of a statement of affairs for a sequestration order.

Alternatively, individuals can be discharged from bankruptcy sooner than the automatic period by fully repaying all debts owed to the creditors included in the bankruptcy petition.

What are some of key considerations for a discharged bankrupt?

It is important to note that a trustee is not obligated to inform a bankrupt when they have been automatically discharged from bankruptcy. If you are unsure as to whether you have been automatically discharged, you can confirm the date of discharge by conducting a search on the National Personal Insolvency Index for a nominal fee. 

However, even once an individual has been discharged from bankruptcy, they may still have ongoing obligations to the trustee in bankruptcy.

Certain debts (listed below) remain payable despite an individual being discharged from bankruptcy. These are outlined in section 153 of the Bankruptcy Act 1966 (Vic) and include:

1. Debts of recognizance (that is, a promise to the Court to pay a certain debt:
2. Debts incurred by way of a release fraud;
3. From maintenance agreements or maintenance orders (for example, child support or spousal maintenance);
4. Debts incurred after the bankruptcy; and
5. Any property that the former bankrupt individual acquires after they were bankrupted. These properties will become part of the bankruptcy's pool of assets and would be distributed to the relevant creditors.

Furthermore, section 152 of the Bankruptcy Act provides that a discharged bankrupt must help the trustee to make them aware or distribute their property as vested in the trustee, even though they are discharged. A failure to assist the trustee in this regard can impose a penalty of up to six months imprisonment.

Overall, it is prudent to ensure your understanding of the terms and conditions of discharged bankruptcy prior to considering yourself as entirely completely “off the hook”.

How Sharrock Pitman Legal can help?

For an individual, bankruptcy can have a devastating effect on future employment prospects and lifestyle, not to mention the important things like family and wellbeing.

Before it comes to the crunch, see legal and financial advice. There may be options to mitigate the damage of being a discharged bankrupt. Contact our Disputes & Litigation team on 1300 205 506 or email sp@sharrockpitman.com.au.

‍The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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