Overview (Bankruptcy Trustees and the Statutory Process)
In accordance with Section 139P of the Bankruptcy Act, 1966, (“the Act”) at the onset of a Bankruptcy the Trustee requires each Bankrupt to complete a Statement of Income. Based on this Statement of Income and other available information (ie by Notice to the Bankrupt’s employer or Bank in accordance with Section 77A of the Act), the Trustee makes an Income Assessment as to the amount, if any, that the Bankrupt is required to contribute to the Bankrupt’s Estate.
Where the Trustee assesses the Bankrupt earns or has other means of income exceeding the Statutory threshold (which at the time of writing exceeds $42,242.20 for a Bankrupt without dependents), the Bankrupt is liable to pay Compulsory Income Contributions which the Trustee is required to properly administer and collect.
In accordance with Section 139ZG of the Act, the full assessed amount is payable in advance, however a monthly installment plan may be adopted by the Trustee to evenly spread payments over the subsequent 12 month period.
Further Statements of Income are required to be completed by the Bankrupt within 21 days after the end of each contribution assessment period (“CAP”), which are 12 months apart. There is usually a total of 3 income contribution periods.
The Bankrupt may challenge the amount of the Income Contribution assessment or the rejection of a hardship application to the Trustee, via application to the Inspector General of ITSA, however this is rarely done. The Bankrupt must make such application to ITSA (Australian Insolvency and Trustee Service) within 60 days of being notified of the Trustee’s Compulsory Contribution Assessment.
Where an Income Contribution assessment is challenged or a hardship application is rejected by the Trustee, the liability for payment by the Bankrupt is not affected or impeded until after review and formal assessment by the Inspector General. This assessment may result in agreement with the Trustee or an amended assessment being issued (relevant Sections of the Act are 139ZA and 139T).
Some Bankrupts pay their Income Contribution installments on time and without prompting. Other Bankrupts require letter and/or telephone prompting to pay overdue installments. A further small percentage of Bankrupts become delinquent in meeting their contribution obligations and require contact and sometimes continued follow-up action or even legal action to prompt payment.
The internal management, administration and collection of overdue income contributions by the staff of Trustees can be onerous, uneconomical and cumbersome due to Trustees often not having computer software which is specifically designed to manage and optimise the timely monitoring of such payments, or the staff dedicated to and experienced in this type of collection role.
Outsourcing the administration and collection of Income Contributions, including those Bankrupts who fall into arrears or may simply refuse to pay, can substantially streamline the process, reducing costs and optimising early collection for the benefit of creditors.
In conjunction with one of Australia’s leading Insolvency Firms and as ratified by ITSA, Pro-Collect has developed a low cost, autonomous system for the ongoing administration and recovery of Compulsory Income Contributions, which removes the day to day burden and obligations from the staff of Bankruptcy Trustees. This system stringently meets all procedural, payment and reporting requirements of the Act. It also provides the Trustee with 24 hour on-line access to review each Bankrupt’s file (under each CAP where applicable), weekly reporting and remittance of corresponding payments to the Bankrupt Estate’s nominated bank account, together with regular and periodical analysis and historical reporting.
The overall process is fundamentally divided into three categories, being the management of Current Receivables (Bankrupts who are liable to pay and for the most part do pay their Income Contribution installments when due), the Collection of Overdue Receivables (Bankrupts who default in the payment of an Income Contribution installment by in excess of one calendar month after the due date for payment) and Recovery of Delinquent Contributions (Bankrupts who have not paid “Overdue Receivables” and who have failed to respond to subsequent letter and telephone demands).
Subject to which of the above three categories applies at any given point in time and the action taken by Pro-Collect within that category (i.e. the issue of and follow-up for the return of Statements of Income), predetermined static fees apply, or in the case of Delinquent Contributions, action may lead to Pro-Collect initiating legal action for recovery of outstanding income contributions on a fees totally contingent on collection basis.
Procedures Manual & Invitation to Contact Pro-Collect
A thoroughly detailed explanation of the adopted processes and a breakdown of the costs are set down in our Procedures Manual, as complied and adhered to in strict compliance with the Act.
If you act as a Bankruptcy Trustee and you see potential benefit in engaging Pro-Collect to administer Bankrupts’ compulsory income contributions on your behalf, we invite you to contact our office to speak to either our Director, Stuart Scott or our General Manager, Helen Warwick for an open and obligation free conversation and assessment.
Contact us to get more information.
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