What does it mean when a bankruptcy trustee is added to my family law case?

In Plain English

If you're going through a family law case (like a property settlement after a divorce) and one of you is bankrupt or becomes bankrupt during the case, a bankruptcy trustee might get involved. This usually happens if the court thinks that the outcome of your family law case could affect the money or property available to pay back the debts of the person who is bankrupt.

The trustee's job is to look after the interests of the creditors (the people or companies that the bankrupt person owes money to). The trustee can become a party to the family law case to make sure that any decisions made by the court are fair to those creditors.

Detailed Explanation

When a party to a family law proceeding becomes bankrupt, or is subject to a personal insolvency agreement, the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 and the Family Law Act 1975 outline specific procedures and considerations.

1. Addition of Trustee as a Party:

• If a party to a property settlement proceeding under section 79 (marriage) or 90SM (de facto relationship) of the Family Law Act 1975 is bankrupt or becomes bankrupt during the proceedings, and the bankruptcy trustee applies to be joined, the court must join the trustee as a party if it believes the interests of the bankrupt's creditors may be affected (Family Law Act 1975 sections 79(11), 90SM(14)). The same applies if a party is subject to a personal insolvency agreement, in which case the trustee of that agreement may be joined (Family Law Act 1975 sections 79(14), 90SM(17)).
• The same principle applies to maintenance proceedings under section 90SE of the Family Law Act 1975 (Family Law Act 1975 section 90SE(2) and (5)).
• The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 also stipulates that if a bankruptcy trustee or a trustee of a personal insolvency agreement is added as a party, they must be added using their "prescribed official name" as defined in the Bankruptcy Act (Federal Circuit and Family Court of Australia (Family Law) Rules 2021 rule 3.16).

2. Impact on Bankrupt Party's Participation:

• Once the bankruptcy trustee is a party, the bankrupt party's ability to make submissions regarding "vested bankruptcy property" or property subject to a personal insolvency agreement is restricted. They can only do so with the court's leave, and the court will only grant leave in "exceptional circumstances" (Family Law Act 1975 sections 79(12)-(13), 90SM(15)-(16), 90SE(3)-(4)).

3. Notification Requirements:

• A party who is a bankrupt or a debtor subject to a personal insolvency agreement must notify all other parties, the trustee, and the court in writing (Federal Circuit and Family Court of Australia (Family Law) Rules 2021 rule 3.21).
• The notice to the trustee must be in writing, given within 7 days (or as soon as practicable), and include copies of relevant documents and the date of the next court event (Federal Circuit and Family Court of Australia (Family Law) Rules 2021 rule 3.22).

4. Definition of "Relevant Proceeding":

• "Relevant proceeding" is defined broadly to include proceedings under various sections of the Family Law Act 1975 relating to property, maintenance, and enforcement of orders (Federal Circuit and Family Court of Australia (Family Law) Rules 2021 rule 3.20).

In summary: The addition of a bankruptcy trustee to a family law case is a significant event that can affect the proceedings, particularly concerning property settlement. It is crucial to understand the trustee's role in protecting creditors' interests and the potential limitations on the bankrupt party's ability to participate in decisions regarding property.