Bankruptcy for Child Support customers 277-04040000

Child Support is notified of a customer’s bankruptcy by:

• the trustee/administrator, or
• the customer

The notification may be written or provided orally by the customer.

The trustee/administrator will advise a customer has:

• been declared bankrupt
• a change in their circumstances, or
• been discharged from bankruptcy

Go to Step 4.

If the customer contacts to advise they have been declared bankrupt, or have entered into a debt agreement to settle debts without becoming bankrupt, explain that Child Support will:

• conduct checks to ensure the debt is correct
• negotiate debt repayment during the bankruptcy period
• issue a Proof of Debt letter to the trustee or administrator outlining their debt at the date of bankruptcy

If further information needs to be provided or clarified, contact the trustee/administrator or the customer to obtain the necessary information.

Note: there are limits to the protected information that can be disclosed to a trustee/administrator. Do not provide any information except what is contained in the Proof of Debt notice. For example, do not provide information about the customer's liability entitlement, name of other parent, bank account details, etc.

If a bankruptcy search is required, issue a VEDA search following the process outlined in the External Searches Guide.

Obtain and document the following information in the customer’s Bankruptcy window:

• Sequestration Date - date the customer was declared bankrupt
• Sequestration Number - bankruptcy number
• Trustee contact details
• Declared in - the state in which the bankruptcy was declared
• Discharge Date - date the customer’s bankruptcy period will end

If all the information is provided, go to Step 5.

Cuba will not accept a bankruptcy application until all of the information is provided.

Record the bankruptcy details in the Customer Record Bankruptcy window and add a special recovery condition to prevent tax refunds from being automatically intercepted.

A ‘Bankrupt’ indicator will appear on the Customer window.

Note: the Provable Debt fields will automatically populate with amounts from the customer’s current Cuba details, however these amounts may change after checks are conducted on the case.

Conduct checks on the case to ensure the debt is correct and that the Proof of Debt amount is accurate. Conduct checks on:

• debt correction, go to Step 2
• incomplete case events, go to Step 3
• consolidated revenue debt, go to Step 4
• penalties, go to Step 8

Document the results in the Record Bankruptcy window.

Follow the steps outlined in Debt repayment to ensure the customer’s debt and incomes are correct.

Note: the debt must be accurate as the Proof of Debt letter will show the debt owed by the customer at the date of bankruptcy.

Run eligibility and view Pre-confirmation results. Action any incomplete case events.

If the customer has consolidated revenue debts, examine the amounts. The provable debt must be clear. Many consolidated revenue debts recorded on Cuba are actually unpaid child support or overpayments. They should be treated that way and not as consolidated revenue debts. If required seek assistance from a Service Support Officer (SSO).

Determine:

• how each amount of consolidated revenue debt arose and
• the type of debt the amount actually represents

Record this on the Proof of Debt. Common causes of consolidated revenue debts include:

• top up used correctly but no payment received from employer, go to Step 5
• third party payment disbursed to payee, go to Step 6
• subsequent dishonoured payment disbursed to the payee, go to Step 7

Record as an overpayment on the Proof of Debt when:

• a debt originated before the bankruptcy date and
• it has been converted to a consolidated revenue debt on Cuba

Top Up debt is a special category of consolidated revenue debt as it is the employer who is responsible for the debt, not the payer. A consolidated revenue debt is recorded on the employer's account as the employer owes that amount to Child Support. This category will not create debt on either the payer or payee's account and should not be recorded on the Proof of Debt.

Note: the consolidated revenue debts described in Steps 6 and 7 below are all overpayments under section 69 of the Child Support (Registration and Collection Act 1988). They are repayable to Child Support. They are not all recorded in Cuba in the same way. This procedure ensures that they are all treated in the same way, however they are recorded.

Child Support must refund the full amount to the third party in these 2 scenarios:

• Money is incorrectly collected from a third party and disbursed:
• to the payee as child support, or
• to the payer as a repaid overpayment

A consolidated revenue debt must then be created on the customer’s account, see Child support overpayments and other payee debt.

Examples include:

• A TRIP is intercepted from a non-customer and is credited to a payer or payee's account which is then disbursed to the entitled recipient
• A financial institution applies a s72A to a non-customer‘s account. They forward the amount to Child Support which is subsequently disbursed to the entitled recipient, or
• The employer remits EW payment and after it is disbursed, advises that it was actually for another payer

If the bankrupt customer is the payer, there is no impact as the consolidated revenue debt is raised against the payee. If the bankrupt customer is the payee, the amount is not unpaid child support and should be recorded on the Proof of Debt as 'overpayment'.

Any consolidated revenue debt amount remaining at the discharge date must be discharged, see Child support overpayments and other payee debt.

If money is credited to the payer’s account and disbursed to the payee, then it is subsequently found that the payer has not actually paid that amount of child support, a consolidated revenue debt will be reflected on the payer’s account.

For an overpayment debt, if money is credited to the payee’s account and disbursed to the payer, then it is subsequently found that the payee has not actually paid the amount towards their overpayment debt, a consolidated revenue debt will be reflected on the payee’s account.

Examples include:

• dishonoured payer or payee cheque
• s72A cheque dishonoured from the employer, or
• top up used for the correct scheduled amount upon advice from the employer but after remitting the amount to the payee, the agency receives a lesser amount reflecting the actual deducted amount

For a bankrupt customer, where these situations occur:

• If the customer is a payer, the amount recorded as a consolidated revenue debt is actually unpaid child support and should be recorded on the Proof of Debt as ‘unpaid child support’. Do not discharge the consolidated revenue debt when the payer is discharged from bankruptcy
• If the customer is a payee, the amount recorded as consolidated revenue debt is actually an overpayment and should be recorded on the Proof of Debt as an ‘overpayment’. These consolidated revenue debts must be discharged when the payee is discharged from bankruptcy

The provable debt reflects the:

• maintenance arrears
• penalty amounts
• other amounts owing at the date of bankruptcy

When the customer is discharged from their bankruptcy the penalties outstanding at the bankruptcy date are discharged via the irrecoverable debt process.

Any penalties which accrued after the bankruptcy date can be considered for remission. See Child Support late payment penalties and estimate penalties.

Examine why a penalty was applied and decide if remittance can be used to negotiate a payment arrangement, follow the process in Debt repayment. if a customer requests remission of late payment penalties incurred:

• during the bankruptcy period, or
• while a debt agreement is in place

Only penalties accrued after the bankruptcy date can be enforced.

Do not enforce collection of penalties which arose before the bankruptcy date. Penalties owing on the bankruptcy date will be included in the Proof of Debt and will be paid via distribution by the trustee.

• Bankruptcy proceedings do not discharge a child support debt or child/spousal maintenance debt (unless ordered by a Court under s153 of the Bankruptcy Act 1966)
• Late Payment penalties will continue to accrue against the child support debt. The balance of unpaid penalties which accrued up to the date of bankruptcy will be discharged once the customer is discharged from bankruptcy
• Penalties, overpayments, parentage overpayment orders and costs and fines applied prior to the sequestration date that are unpaid when the bankruptcy is finalised are discharged. These debts (at sequestration date) cannot be collected between the sequestration and discharge date, and are discharged at the discharge date (once discharged can never collect them)
• Bankruptcy information is available on public record and if appropriate, may be disclosed to the other party to manage payment expectations

Note: once a customer has been declared bankrupt Child Support cannot enforce collection of certain elements of the provable debt, for example overpayments, penalties, some consolidated revenue debts and costs and fines. Only dividends from the trustee can be credited against these debts.

Child Support will only apply amounts to these debts if:

• the provable maintenance debt has been paid and there is no further debt outstanding, that is post-bankruptcy debt
• a court specifically directs that an amount is to be applied to a particular component of the provable debt, for example, costs/fines
• the trustee specifically directs the amount to be applied to a particular component of the provable debt
• amounts are paid specifically for non-maintenance assessment/maintenance order debts as part of a debt agreement under Part IX of the Bankruptcy Act 1966

A Proof of Debt letter must be issued to the Trustee so that dividends may be received during the course of the bankruptcy process.

Consider the following points, before making a decision on remitting LPPs:

• Has the customer entered into bankruptcy or a debt agreement voluntarily?
• Has the debt accrued due to circumstances within the customer’s control?
• Are there special circumstances?

For more information when making this decision, see References for a link to the Child Support Guide 5.1.6: Late payment penalties when making this decision and Child Support late payment penalties and estimate penalties.

If the penalties are not remitted, Child Support will include them as part of the Proof of Debt letter to the trustee or administrators of a Part IX debt agreement.

Issue the Proof of Debt using the procedures in the Bankruptcy Cuba Process Help to establish the specific debt owed by the customer on the bankruptcy date for:

• maintenance (spousal and/or child support)
• consolidated revenue debt
• penalties (late payment and estimate)
• costs and fines
• overpayments

Note: there are limits to the protected information Child support can disclose to a trustee/administrator. Do not provide any information other than what will be contained in the Proof of Debt notice – for example do not provide information about the customer’s liability/entitlement, name of other parent, bank account details, etc.

Australian Financial Security Authority (AFSA) have changed their forms which affects the process for lodging Proof of Debt forms for bankruptcy.

The new Proof of Debt form must be downloaded from the AFSA website, and replaces the system generated form. The Resources page contains a link to the form on the AFSA website. After printing the Proof of Debt from Cuba:

• open the AFSA Form 8 - Proof of Debt
• copy the information from the Cuba generated Proof of Debt onto the AFSA form
• ensure that the Proof of Debt is signed by the person (SO5) issuing the notice
• securely discard the Cuba generated form and attach the completed AFSA Proof of Debt form to the Cuba letter
• document the actions taken to issue the Proof of Debt letter in the Bankruptcy Maintenance window

Contact the Trustee to:

• advise that a Child Support Proof of Debt letter has been issued
• seek the likelihood of distributions to creditors
• seek information about the customer’s capacity to pay their child support arrears

Document conversation in the Record Bankruptcy window.

Restrictions apply to the type of debt that can be collected during the period of bankruptcy.

Child support and child/spousal maintenance debts that accrue before or after the bankruptcy date can be collected during the bankruptcy period.

Negotiate repayment of the debt during the bankruptcy period. Advise the customer that the following can be applied to the customer’s debt:

• distributions from the trustee
• voluntary payments (crediting of NAPs and Non-Prescribed NAPs)
• tax refunds
• employer withholding. For establishing EWA amount – especially if the customer is also making payments to a trustee, see Debt repayment
• section 72A:
• if issued before the date of bankruptcy, the notice is effective against assets under the control of the trustee
• if issued after the date of bankruptcy, the notice is effective against property in the possession and control of the bankrupt customer
• section 143 orders:
• If the parentage overpayment order was made and registered with Child Support prior to the sequestration date, the debt from the order that had accrued up until that date cannot be collected and will be discharged when the bankruptcy is discharged
• If the parentage overpayment order was made and registered with Child Support after the sequestration date the entire debt accrued from this order can be collected through our usual collection methods

Use the Collection and Debt macro to guide the debt repayment negotiation. Inform the customer that payments are first allocated to the post-bankruptcy (maintenance) debt and then against the provable debt.

Legal action can only be taken against property in the possession and control of the bankrupt customer.

Note: if repayment causes the provable debt to be reduced, issue a new Proof of Debt letter to the Trustee. For more information see Bankruptcy Cuba Process Help - Steps for recording a new bankruptcy record - Step 5.

The following debts that accrued before the bankruptcy date cannot be collected via administrative enforcement during the bankruptcy period:

• overpayments
• penalties
• consolidated revenue debts
• costs and fines
• debts arising from a parentage overpayment order made and registered with Child Support before the bankruptcy date:
• any debt accrued up to this date cannot be collected and will be discharged at the end of the bankruptcy period

Any non-collectable debts that remain unpaid at the end of the bankruptcy period will be discharged as legally ‘irrecoverable’.

A Part IX debt agreement under the Bankruptcy Act 1966 is a voluntary step that a debtor can take to make an agreement with their creditors in order to settle debts without becoming bankrupt.

Creditors can be asked to participate in debt agreements and arrangements as alternatives to bankruptcy.

The agreements do not prevent Child Support from collecting all maintenance debt during the agreement period, however they do prevent enforcement of:

• overpayments
• late payment penalties
• some consolidated revenue debts
• court ordered costs and fines

If Child Support receives notification of creditor participation in debt agreements and arrangements under Parts IX of the Bankruptcy Act issue a Proof of Debt to the trustee/administrator of the debt arrangement.

While a Proof of Debt will be issued Child Support does not participate in the voting process for Part IX agreements.

Advise the customer that during the bankruptcy period:

• they will be contacted when events trigger on their case, for example, care changes and tax return intercepts
• they need to contact Child Support if their circumstances change

The Cuba record of a provable debt must be manually maintained. Customers will be managed as part of a normal case load.

Update the customer’s bankruptcy record using the procedures in the Bankruptcy Cuba Process Help if there are changes to the:

• trustee details
• provable debt amount resulting from:
• payments from the trustee
• payments from the customer (including NAPs and Prescribed NAPs)
• collection activity, or
• retrospective variations to the liability

Issue an amended Proof of Debt letter to reflect changes to the:

• provable debt (increases/ decreases), or
• trustee details

For more information see Bankruptcy Cuba Process Help - Steps for recording a new bankruptcy record - Step 5.

Adjust the provable debt when:

• the trustee or the court intends a specific payment to be paid towards the provable debt
• a variation affecting a period prior to the bankruptcy date has changed the amount of debt owed
• the amount of penalties, consolidated revenue debt, or costs and fines is varied, or
• all post - bankruptcy debt has been paid and a payment has been allocated against the provable (maintenance) debt

Payments received other than Trustee payments should be allocated first against maintenance debt which accrued since the bankruptcy date and is therefore not subject to the bankruptcy provisions

Issue the updated Proof of Debt letter to the Trustee so that dividends may be received during the course of the bankruptcy. For more information see Bankruptcy Cuba Process Help - Steps for recording a new bankruptcy record - Step 5.

Bankrupt customers are generally discharged from bankruptcy 3 years and 1 day after the date of bankruptcy.

Note: this timeframe could be extended to 5 or 8 years if a creditor lodges an objection regarding the debtors discharge.

If it has been 3 years since the date of bankruptcy and Child Support have not received notification that the bankruptcy has been discharged, request/conduct a VEDA bankruptcy search following the process outlined in the External Searches Guide. This will determine the status of the bankruptcy.

The trustee usually advises creditors when a customer’s bankruptcy has been discharged.

Contact the trustee:

• if written notification has not been received - obtain verbal confirmation of the discharge date
• to confirm the administration of the bankruptcy has been finalised such as:
• investigations
• sale of assets
• distributions, or
• income contributions

If the bankruptcy has not been discharged refer to an SSO.

Note: there will not be any triggers for a customer reaching the end of a bankruptcy period. This will be determined by normal case management.

Refer to the original Proof of Debt document that outlines the amounts imposed before the bankruptcy date. The following debts are irrecoverable:

• overpayments
• penalties (estimate and late payment)
• some consolidated revenue debt
• parentage overpayment orders
• costs and fines

When the customer has been released from the bankruptcy, discharge any unpaid amounts in Cuba using the procedures in the Bankruptcy Cuba Process Help.

Note: it is important that the discharge is processed prior to the bankruptcy record being finalised, in accordance with Bankruptcy Cuba Process Help.

Child Support maintenance debt is not discharged unless a court orders the provable child support maintenance debt be discharged.

If the customer has no debts remaining and there are no other issues on the case, check Cuba, and finalise the bankruptcy record if it still exists using the procedures in the Bankruptcy Cuba Process Help.

If there are arrears surviving the bankruptcy, contact the customer to discuss repayment of child support debt for the period before the bankruptcy. Use the Collection and Debt macro to guide the debt conversation with the customer.