When Can I End Bankruptcy Early?

November 30, 2021

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May 20, 2022

A person is discharged from bankruptcy automatically three years and one day after the bankrupt’s state of affairs is accepted, as outlined in s 149 of the Bankruptcy Act 1966. After this discharge, the bankrupt is no longer subject to the provisions of bankruptcy but does still have some ongoing obligations to assist the trustee. An annulment of a bankruptcy occurs when a certain event takes place and can occur before the three years and one day has passed. A bankruptcy can be annulled by:

  1. by the payments of debts in full as per s 153A of the Bankruptcy Act;
  2. a formal composition or arrangement with creditors, in alignment with s 73 and 74 of the Bankruptcy Act;
  3. or by an order of the Court.

Discharge by paying all debts

A bankruptcy is discharged if the trustee is satisfied the debts of the bankrupt have been paid in full, as per s 153A(1) of the Bankruptcy Act. As part of these repayments, the bankrupt may also pay any expenses incurred during the administration including the remuneration of the trustee for their services. 

Discharge by scheme of arrangement

A bankrupt can also be discharged if they propose a scheme of arrangement which gets passed by a special resolution of bankrupt’s creditors as per s 73(1) of the Bankruptcy Act. In this scheme, a proposal will be lodged to the creditors, and if they accept the proposal by special resolution at a meeting, the bankruptcy has been successfully annulled. 

Discharge by annulment by the Court

In the case of annulment by the court, the bankrupt can be discharged under rule 7.02 of the Federal Court (Bankruptcy) Rules 2016 if the court has been satisfied that one of three grounds has been made out. These are: 

  • a sequestration order ought not have been made; or
  • a debtor’s petition ought not to have been presented or accepted. 

The bankrupt must apply to the court for this annulment where they must provide payment for the trustee’s fees and expenses incurred during the administration of the bankrupt’s assets, and the application must be served on the trustee at least seven days before the hearing.

What is the effect of an annulment?

The effect of the annulment by court order is that all payments made by the trustee before the annulment are taken to have been validly executed. The trustee may use the property still vested in them to offset expenses incurred as a result of the administration. After such payments have been made, s 154(3), (6) and (7) state the expenses are to be returned to the former bankrupt, putting the bankrupt back in the position they were in before the bankruptcy.

How can Carneys’ bankruptcy lawyers help?

Carneys’ bankruptcy lawyers are skilled in advising individuals seeking to end their bankruptcy, by any of the three methods set out above. In particular, an application for annulment requires specialist advice from experienced lawyers to present your case as persuasively as possible. 

Get in contact today to discuss your options to end your bankruptcy.