The Registrar may still collect child support, or child or spousal maintenance, from a bankrupt payer by negotiating voluntary payment arrangements, by deductions from salary or wages and by intercepting and applying taxation refunds.
A person is bankrupt when he does not have sufficient assets, funds or means to pay his outstanding debts. A person may be forced into bankruptcy by one or all of his creditors’ petition or the person himself may declare bankruptcy by filing a debtor’s petition. Once the court accepts a petition, a debtor is automatically bankrupt and all his assets or properties will be vested in the trustee who will be selling them in order to pay off debts. Henceforth, creditors will be transacting with the trustee and not the debtor. In family law proceedings, once the trustee is admitted as a party the debtor is not anymore allowed to make admissions unless with court approval.
A person declared bankrupt will be allowed to retain only his most basic possessions like his furniture, tools of trade and clothing. All other property of value will be vested unto the trustee. The bankrupt can retain a car only up to a certain prescribed value. He can obtain credit also only up to a prescribed value.
With the predicament of being declared bankrupt, a natural concern arises whether the bankruptcy will affect a person’s child support liability. The answer is that it does not. A person who has been declared bankrupt is not exempted from the payment of child support nor can the trustee refuse to pay off the child support debt.
Under Section 58 of the Bankruptcy Act 1996, a creditor cannot be prevented from enforcing a remedy against a bankrupt for a debt under a maintenance agreement or order. Child support is one such maintenance liability which is needed for the continued support of a human being. The Australian Government has made sure that child support will not be compromised whenever a person is declared bankrupt by making child support as one of the maintenance liabilities that receive special treatment under the Bankruptcy Act.
There are legal remedies available to the Registrar to enforce payment of a child support liability against the bankrupt parent or payer. The Registrar can file an action against property that was not vested in the trustee. Properties that were not vested in the trustee can be used to satisfy a child support debt but the Registrar must first file a court application to this effect.
Another way to enforce a child support debt is to lodge a claim with the trustee. Upon a declaration of bankruptcy creditors are unable to file an action to collect from the bankrupt. However, the Bankruptcy Act provides special treatment to the Registrar making it possible for the latter to lodge a claim with the trustee.
A claim for child support is a provable debt under the Bankruptcy Act and the Registrar can prove the outstanding child support debt of the bankrupt up to the date of bankruptcy. The trustee will normally not ask for a proof of debt if the Registrar files a notice of child support claim. So, proof of debt is not required unless the trustee asks for it. When the Registrar lodges a notice of debt with the trustee, he must specify the amount of the child support debt, including the penalties.
There are other remedies available to the Registrar which consists of negotiating with the bankrupt for voluntary payments, deduction of the child support amount from the salary or wages and interception and application for taxation refunds. The fact that the Registrar can transact with the bankrupt for the collection of the child support is another proof of the special treatment towards child support as a debt of the bankrupt. Generally, once a person is declared bankrupt, creditors can only transact with the trustee who is tasked with managing the debts of the bankrupt.
The trustee must be notified of the debts of the bankrupt and it is the former’s responsibility to sell all or some of the properties of the bankrupt to pay off his debts. In the case of child support collection, the Registrar is allowed to enter into voluntary payment arrangements with the bankrupt.
Bankruptcy usually lasts for three years unless the bankrupt applies to the court to be discharged earlier. Under Section 153 of the Bankruptcy Act when a bankrupt is discharged from bankruptcy, the discharge operates to release him from all debts. However, child support is one of those debts that are not automatically released upon the discharge of the bankrupt from bankruptcy. Child support being a registrable maintenance liability will survive the person’s bankruptcy which is one of the exceptions provided under Section 153. Thus, the Registrar can still collect child support debt relating to the period before the bankruptcy even after the discharge of a person from bankruptcy.
On the part of the bankrupt party, he can apply with the Federal Circuit Court for a discharge from his debts that were made under a maintenance agreement or order. As for the Registrar, it will not release the bankrupt from his child support debt unless there is a court order. Without the court order, the Registrar will continue to collect child support arrears from the former bankrupt payer.