Debt collection guideline: for collectors and creditors

16. Contact following bankruptcy or a Bankruptcy Act agreement

The following information on bankruptcy has been written based on guidance from the Australian Financial Security Authority (AFSA), formerly known as the Insolvency and Trustee Service Australia.

AFSA is the Commonwealth body responsible for the administration and regulation of the personal insolvency system, trustee services and the administration of the Personal Property Securities Register (PPSR) and proceeds of crime.

  1. Under the Bankruptcy Act an unsecured creditor57 may lodge a proof of debt with the bankrupt’s trustee. With limited exceptions set out in this Act, an unsecured creditor may not:
    • take or continue legal action or allow recovery action to continue against the bankrupt person
    • take any remedy against the person or property of the bankrupt.
  2. A creditor or debt collector must also stop all informal collection activity against a bankrupt person for an unsecured debt.
  3. Trying to persuade a bankrupt person that they should or must pay an unsecured debt covered by the bankruptcy will constitute misleading or deceptive conduct under the consumer protection laws.58 Contacting a bankrupt person about such a debt may also amount to harassment of the debtor or unconscionable conduct.
  4. Secured creditors59 (including their agents) are entitled to take possession of secured assets and sell these if the bankrupt person is in default. Contacting a bankrupt debtor to sight, inspect or recover a security interest is permissible so long as the contact is consistent with the law.
  5. In certain circumstances, a bankrupt person may also agree to pay a secured creditor to keep an asset. Ongoing communication with the bankrupt person in connection with such an arrangement is also permissible.
  6. Apart from becoming bankrupt, in certain circumstances a debtor may enter into a Part IX debt agreement or Part X personal insolvency agreement under the Bankruptcy Act. These agreements involve a process by which a debtor makes a proposal to the creditors. If this proposal is formally accepted by the creditors, both debtor and creditors are bound by it and creditors cannot enforce remedies to recover their debts so long as the agreements are valid and are not declared void by a court or otherwise terminated. As with bankruptcy, secured creditors’ rights are not affected by these agreements.60
  7. Unsecured creditors (or their agents) should contact the trustee of a bankrupt estate, or the administrator of a Part IX or trustee of a Part X agreement for information about the possibility of recovering their debt.

57 A creditor who does not hold a mortgage, bill of sale or other security over an asset that can be sold if the debt is not paid.

58 When a person is bankrupt, the debt may be recoverable from the bankrupt person’s estate. In this case, the trustee of the bankrupt estate and not the bankrupt person should be contacted.

59 A creditor who holds a mortgage, bill of sale or other security over an asset that can be sold if the debt is not paid.

60 Further information is available on the AFSA website or 1300 364 785.