Case study: Lucy


Lucy is a 24 year old full-time student from Brisbane and works part-time at a café. She shares a rental apartment in the city with another student.

In 2019, the number of Lucy’s shifts at the café decreased. She had to rely on credit cards to cover her expenses, and then started missing payments. By mid-2020, she owed $30,000 to banks. Lucy became bankrupt in August 2020 and the trustee of her bankrupt estate was the Official Trustee (the Australian Financial Security Authority or AFSA).

In September 2021, Lucy wanted to set up a company to start her own café but she could not be a director of a company while bankrupt, unless she got the permission of a court. a. Lucy spoke to her parents about this and they told her they could give her some money to help.. Lucy called AFSA to find out more and was told that she could make a composition proposal* to her creditors to end her bankruptcy early.

Lucy told AFSA that she wanted to go ahead with this. Her parents transferred $20,000 to AFSA to hold in trust until creditors voted on the composition proposal. They also paid for the creditor meeting costs.**

AFSA wrote a report to creditors outlining what Lucy was offering, and the investigations AFSA had made into the bankrupt estate. AFSA had not found anything of concern, or any assets owned by Lucy that might provide a better return to creditors, so it was recommended that creditors should accept the proposal. The creditor meeting was scheduled a month after the report was provided to creditors.***

At the meeting, the creditors accepted the proposal.**** Lucy’s bankruptcy ended on the date of the meeting. The National Personal Insolvency Index (also known as the Bankruptcy Register) was updated to reflect the end of the bankruptcy.

*A composition proposal is where someone who is bankrupt offers their creditors an amount of money which is less than the full amount owed. The offer must include money to pay creditors, the trustee’s fees and expenses, and any government charges, such as the ‘realisations charge.’ Creditors vote on the proposal at a meeting – there is a non-refundable fee for advertising the meeting. If creditors reject the proposal, the money offered is returned and the bankruptcy continues. If the proposal is accepted, the bankruptcy is annulled, which means the bankruptcy effectively ends

** Refer to the AFSA website for fees and charges including the current fee for advertising a meeting of creditors

*** Timeframes for when a meeting of creditors can be held can be different for different bankrupt estates. The Bankruptcy Act has statutory timeframes for creditors to lodge a proof of debt to make a claim in the estate for their debts and interest claims. Timeframes also apply to payments to creditors (called ‘dividends’) in a bankrupt estate. Timeframes may be longer if creditors do not lodge their claims or respond in a timely manner, if more information is required by the trustee to assess those claims, or a proof of debt is rejected by the trustee.

**** For a proposal to pass, it must be accepted by over 50% of creditors in number, and over 75% of creditors in dollar value.