Second or Subsequent Bankruptcies

When a debtor becomes bankrupt, the property of that person, not being after-acquired property, vests in the trustee of the estate of the bankrupt:  section 58(1)(a) of the Bankruptcy Act 1996 (Cth) (Act).

But what is the position where there is a second or subsequent bankruptcy? 

For instance, where:

1. a discharged bankrupt becomes once again bankrupt; or  
2. an undischarged bankrupt becomes bankrupt again. An individual can be made bankrupt a second time even if he/she have not been discharged from his/her first bankruptcy in relation to a debt that individual incurred during his/her bankruptcy.  

Section 59 of the Act explains what property vests in the second or subsequent trustee. This section provides that the property that vested in the earlier trustee at the date of the earlier bankruptcy remains vested in that trustee and only after acquired property vests in the second or subsequent trustee.

By virtue of section 59(1)(c)(i) of the Act, the earlier trustee has the right to prove in the later bankruptcy for any unsatisfied balance of:

1. his/her expenses or remuneration in the earlier bankruptcy;
2. the liabilities incurred by him/her in administering the estate in the earlier bankruptcy; and
3. the debts proved in the earlier bankruptcy.

The trustee in the earlier bankruptcy shall rank equally with the ordinary secured creditors in the later bankruptcy: section 59(1)(c)(ii) of the Act.

In other words, the earlier trustee will be a creditor of the later bankruptcy if he/she has any unsatisfied expenses or remuneration, liabilities and/or debts proved in the earlier bankruptcy.

Where there are unsatisfied expenses or remuneration, liabilities and/or debts proved in the earlier bankruptcy, the earlier trustee should lodge a proof of debt in the later bankruptcy for these amounts.

It should also be remembered where an earlier trustee is a creditor of the later bankruptcy, he/she is entitled to request information regarding the later bankruptcy from the second or subsequent trustee pursuant to section 70-45 of the Insolvency Practice Schedule (Bankruptcy) (IPS), which is contained in schedule 2 of the Act.

Subsequent, and even overlapping, bankruptcies are not as uncommon as some may think and it can be a tricky landscape to navigate, whether as the bankrupt, a creditor, or even the trustee. For specialist advice, reach out to the team at Cronin Miller Litigation Lawyers.