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Effect of bankruptcy on Financial Supplement Loan (FSL) prior to transfer to the Australian Taxation Office (ATO) 102-15010050

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The Student Financial Supplement Scheme (SFSS) closed from 1 January 2004. Since December 2005 all outstanding Financial Supplement Loans (FSL) have been transferred to the Australian Taxation Office (ATO) for recovery.

This document outlines the repayment of Financial Supplement Loan (FSL), prior to transfer to the Australian Taxation Office (ATO), if the customer has declared bankruptcy.

FSL was a voluntary loan paid under the Student Financial Supplement Scheme (SFSS). It gave eligible tertiary students the option of borrowing money to help cover their expenses while they studied.

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End of loan contract period and transfer to the ATO

The funds for the FSL were provided by the Commonwealth Bank of Australia (CBA). When the student applied for FSL, the student entered into a loan contract with the CBA for a contract period. All loans were administered by Centrelink (now Services Australia) until the end of the contract period. At the end of the contract period, the outstanding loan was transferred to the Australian Taxation Office (ATO). The loan then became a debt to the Commonwealth and is repayable through the taxation system.

Bankruptcy

A customer who declared bankruptcy prior to the transfer of FSL to the ATO must still repay the debt.

FSL is not a 'provable' debt for the purposes of bankruptcy because it is not immediately repayable. This means that the debt cannot be included as a liability for the purposes of declaring bankruptcy. There is no provision for FSL to be reduced or discharged because a person has been declared bankrupt. This is because FSL need only be repaid once the person's earnings are equal to or more than the threshold applied by the ATO. Therefore, the loan cannot be considered an immediate debt or financial commitment for the period of bankruptcy. In view of this, for the purpose of FSL, the customer is not required to advise Services Australia that they have been declared bankrupt.

Note: the final balance on all outstanding loans will show as zero on Services Australia's system. This does not mean that the loan has been zeroed off, just that the balance has now been transferred to the ATO for recovery through the taxation system.

Effect of bankruptcy on Financial Supplement loan (FSL) after transfer to the Australian Taxation Office (ATO)