What Property is “Divisible” in Bankruptcy?

Put simply trustees of bankrupt estate collect and sell the assets of the bankrupt and distribute the proceeds to the bankrupt’s creditors.

The Bankruptcy Act defines “divisible” assets (those assets that are available to the trustee) from “non-divisible” assets (those assets that are not available to the trustee). Whether an asset is divisible or not is sometimes a disputed issue.

Any property of the bankrupt automatically “vests” in the trustee on the commencement of the bankruptcy. Legal title to some property may have to be registered in the trustee’s name, but equitable title will automatically vest (e.g. in real property). Assets acquired by the bankrupt after the bankruptcy commenced and before discharge may also vest in the trustee when they are acquired. These are called “after-acquired property”.

After acquired property includes any property acquired by or devolved on the bankrupt on or after the date of the bankruptcy and before discharge, being property that is also divisible amongst their creditors. Non-divisible after acquired property does not vest in the trustee.

What is Divisible Property?

The Bankruptcy Act has a wide definition of divisible property and broadly covers the following:

  • All property owned at the time of bankruptcy or acquired during the bankruptcy;
  • Any rights or powers over property that existed at the date of bankruptcy or during the bankruptcy;
  • Any rights to exercise powers over property.

Non-Divisible Property

The Bankruptcy Act provides that a number of types of property will not be divisible.

These can loosely be grouped into the following different areas:

  • Property held by the bankrupt in trust for another person that is property that is not owned by the bankrupt.
  • The bankrupt’s household property.
  • Personal property that has sentimental value for the bankrupt.
  • The tools of trade that are for use by the bankrupt in earning income by personal exertion (subject to the value limit prescribed by the regulations).
  • A vehicle used by the bankrupt as a means of transport, (subject to the value limit prescribed by the regulations).
  • Policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse of the bankrupt whether the proceeds are received on or after the date of the bankruptcy.
  • The interest of the bankrupt in a regulated superannuation fund.
  • A payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where the eligible superannuation plan involved is a fund or scheme covered by the Act.
  • The amount of money a bankrupt holds in a retirement savings account.
  • A payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where the eligible superannuation plan involved is an RSA.
  • Any right to recover damages or compensation for personal injury or wrong doing or in respect of the death of the spouse or member of family of the bankrupt.

Sentimental Property

Sentimental property must be non-monetary, have real sentimental value to the bankrupt and be an award for sporting, cultural, military or academic achievement.

Sentimental property does not include items such as engagement or wedding rings.

Creditors must also resolve that this property is sentimental property by special resolution at a meeting of creditors. If the creditors do not approve it as sentimental property it is divisible to the estate.

Should you require further information please contact Trevor Rosenthal. The advice provided in this information sheet is general advice only and may not apply to your particular circumstances. You should seek you own independent legal advice and not rely on this general information.