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Can Transactions be Clawed Back in Bankruptcy?

By Administrator 14 May, 2013

If you are facing bankruptcy it may be tempting for some to try and shift assets to keep them away from your creditors.

The Bankruptcy Act has very strict rules to protect creditors from people who shift assets prior to bankruptcy.  We will explore the most common type of transactions which may be clawed back under bankruptcy.

Bankruptcy and Superannuation Contributions

If a person who later becomes bankrupt, transferred an excessive amount of money prior to bankruptcy into their superannuation fund, this amount in certain circumstances, can be clawed back.

By way of an example if someone transferred $10,000 into their superannuation fund, immediately prior to bankruptcy, the Trustee in Bankruptcy could at a later stage “claw” this amount back.

If however, your employer simply paid the regular instalment from your salary into your superannuation fund, then these payments would not become challenged or attacked by a Trustee in Bankruptcy.

Bankruptcy and the Family Home

Where a person transfers their share in the family home to their spouse within 5 years of becoming bankrupt and the consideration paid is less than market value, the transaction can in many circumstances be clawed back. The most common example is where the property is transferred for “love and affection” or for a “nominal amount” like $1.

The “claw back” period can be indefinite if the Trustee in Bankruptcy can prove that the transfer was done to defeat creditors. For example, if someone transferred property for no consideration 10 years prior to becoming bankrupt to avoid and defeat creditors, then the Trustee in Bankruptcy would be entitled to claw it back.

If you are considering bankruptcy, do not shift assets out of the reach of your creditors.  Shifting assets prior to bankruptcy can be traced and clawed back.  If you get caught out your bankruptcy will get extended from the minimum period of 3 years to the maximum period of 8 years.