Facing bankruptcy or insolvency in Perth can be overwhelming. Understanding how the Bankruptcy Act 1966 (Cth) interacts with property rights in Western Australia is crucial if you want to know what assets you can keep and what creditors may claim.
1. Bankruptcy in Australia – The Basics
When a person is declared bankrupt in Australia, their property generally vests in the trustee in bankruptcy. This means the trustee gains control of the property and can sell it to satisfy creditor claims.
In practical terms:
- Any real estate, vehicles, investments, or other assets owned at the date of bankruptcy are captured.
- Property acquired during the bankruptcy period (before discharge) may also vest in the trustee.
- Certain limited categories of property are excluded under section 116(2) of the Bankruptcy Act.
For Perth residents, this means your family home, investment property, or even a jointly owned Dalkeith or Cottesloe residence could fall under trustee control unless specifically exempt.
2. Real Property in Perth – Sole vs Joint Ownership & Determining your Interest
(i) Sole Ownership
If you are the sole registered owner of a Perth property, the trustee can typically sell it. The trustee will:
- Obtain a professional valuation, often using local Perth valuers.
- Decide on the most effective sale method (auction or private treaty).
- Apply proceeds to creditors, subject to mortgages and secured interests.
(ii) Joint Ownership
If you co-own property (e.g., with a spouse), the trustee acquires your share. The co-owner can either:
- Buy out the trustee’s interest, or
- Work with the trustee on a joint sale.
If no agreement is reached, the trustee can apply to the WA Supreme Court to appoint a statutory trustee for sale. This process has been used in numerous Perth property disputes where one spouse becomes bankrupt.
(iii) Interest in property
If the bankrupt does not have a financial interest in property (ie has not contributed towards the costs of purchasing the property or paying the mortgage), then the trustee is unable to claim it. However, a trustee may investigate a bankrupt’s interest in their partner’s house for example. This applies even if the bankrupt is not listed on the title. If the bankrupt does have an interest in their partner’s property, the trustee may take action to claim the bankrupt’s share.
Key evidence in establishing a bankrupt’s interest in a property
This includes, but is not limited to:
- whether the bankrupt lives in the house,
- whether the bankrupt contributes to the mortgage,
- whether the bankrupt contributes to other joint expenses (for example bills, council rates, strata levies, maintenance costs, etc),
- when the bankrupt’s partner acquired the property,
- when the relationship between the bankrupt and their partner commenced, and
- the intentions of the parties over time.
3. Protecting Property from Bankruptcy
There are several ways to attempt to protect the family home in bankruptcy. Some of the more common methods are explained below.
(i) Presumption of advancement
The law has historically recognised certain relationships, such as marriage, where it is presumed that a husband intended to gift a property (such as the family home) to his wife. This is known as the presumption of advancement. The presumption is antiquated because it only applies from a husband to his wife, and not to de facto partners, same sex couples or from a wife to her husband.
To rebut this presumption, a resulting trust may arise because it is presumed that the husband (who contributed to payment of the purchase price) did not intend to gift his contribution to his wife. A resulting trust, if established, would create a beneficial interest for the husband.
A well-known illustration of how bankruptcy law interacts with family property in Western Australia is the High Court case Bosanac v Commissioner of Taxation [2022] HCA 34.
- The dispute concerned a luxury home in Dalkeith, one of Perth’s most affluent suburbs.
- The wife was the sole registered owner, though the husband contributed to the purchase price.
- The Commissioner of Taxation argued the wife held the home on trust for the husband, who owed millions in tax debts.
- The High Court rejected this argument in 2022, confirming that ownership structures and purchase intentions matter.
Why it matters:
- If you buy a Perth property in one spouse’s name only, creditors may not automatically gain access to it when the other spouse is bankrupt.
- The case shows the limits of “resulting trust” arguments in bankruptcy and insolvency law.
- For professionals in Perth, it’s a reminder that structuring property ownership correctly at the outset can provide significant protection.
(ii) Purchase property in one name
It is often common for property to be purchased and registered solely in the name of the “non-risk” spouse. That is, the majority of the family home ownership (for example, 99%) is given to the spouse who faces less, or no, risk of litigation or other legal “attacks” from creditors.
The spouse facing more risk must still retain some interest in the family home to ensure that the property can’t be pursued by creditors without the authority of both spouses. This approach allows the spouse facing more risk to effectively disassociate themselves from the family home, thus reducing the risk of losing it to creditors.
(iii) Reduce equity in the property
As the value of the property rises, so too does equity in the property which can then be available to creditors. This risk can be mitigated by undertaking borrowings against the property which will result in a charge over the property. This will ensure that little equity is made available to creditors or any party threatening litigation.
(iv) Establish a discretionary trust
A discretionary trust for the family home will separate said property, whereby ownership of the property falls under the trust. Separate trusts for separate assets allow parties to reduce their risks and exposure to creditors, whilst also allowing them to maximise on the advantages which a trust offers, such as taxation benefits.
4. Limited Exemptions Under Bankruptcy Law
Unlike in some jurisdictions, Australia — including WA — offers very limited exemptions from bankruptcy:
- Tools of trade up to a set value may be retained if used for earning income.
- Protected funds (superannuation, compensation payments, personal injury settlements) can remain exempt, provided they are kept separate.
- No homestead exemption exists in WA. Unlike in the United States, your family home in Perth is not automatically protected.
5. Duration of Trustee Control
A bankruptcy typically lasts three years from filing the Statement of Affairs. However:
- Trustees can retain an interest in real estate for up to 20 years if notices are properly lodged.
- This means a trustee may still sell a Perth property long after the bankrupt has been discharged.
6. Doctrines & Legal Principles
- Doctrine of Exoneration: Courts may adjust ownership shares where one spouse has disproportionately contributed to debts. This may affect how equity is divided in a Perth family home.
- Resulting Trust Claims: Creditors sometimes argue property is really owned by the bankrupt even if registered in the spouse’s name. The Bosanac decision shows courts require clear evidence before accepting such claims.
7. Local Guidance in WA
Perth residents facing bankruptcy should seek help early:
- Legal Aid WA – provides general advice and referrals.
- AFSA (Australian Financial Security Authority) – manages the bankruptcy system nationally.
- Tax Lawyers – our Perth based firm gives tailored advice on asset protection, property structuring, and creditor negotiations.
8. Key Takeaways for Perth Residents
- Bankruptcy law is national, but WA courts handle enforcement and property disputes.
- Homes in suburbs like Dalkeith, Cottesloe, Nedlands, and South Perth can all be subject to trustee claims if ownership structures aren’t clear.
- The Bosanac case demonstrates how ownership decisions affect creditor claims.
- Exemptions are narrow — mainly tools of trade and protected funds.
- Trustees can retain control of property long after discharge.
👉 If you’re in Perth and concerned about protecting your property from creditors, early legal advice is critical. Structuring ownership properly today could make the difference tomorrow.
This article is general information only. For tailored advice, contact Tax Lawyers
