Editors --- "Bankruptcy: waiver of debt and special circumstances" [2008] SocSecRpr 46; (2008) 10(4) Social Security Reporter, Article 12

• KLEWER and SECRETARY TO THE DFHCSIA
• Background
• The issues
• Bankruptcy
• Special circumstances waiver
• Formal decision

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Bankruptcy: waiver of debt and special circumstances

KLEWER and SECRETARY TO THE DFHCSIA

(2008/964)

Decided: 30th October 2008 by N. Isenberg

Background

Klewer was overpaid rent assistance and a debt was raised of $4,918.40 in 1997. Some of the debt was recovered but $3,114.88 was owing when Klewer declared bankruptcy on 20 September 2005.

A further debt was raised of $317.55in relation to family tax benefit after bankruptcy.

Klewer appealed to the Tribunal claiming that both debts should be waived.

The issues

The issues in this appeal were – what is the impact of bankruptcy on the debts and can they be waived under the ‘special circumstances’ provisions of the Social Security Act 1991 (the Act)?

Bankruptcy

The Tribunal relied on the case of Secretary, Department of Social Security v Southcott [1998] FCA 323; (1998) 50 ALD 162, concluding that the Tribunal has no power to waive a debt which was incurred before bankruptcy.

... the secretary had no power to waive or write off the debt during the bankruptcy. Once Mr Southcott became bankrupt, the secretary could lodge a proof of debt for the amount of overpayment, or could determine not to lodge a proof of debt in the bankruptcy. If and when Mr Southcott is released from bankruptcy, his liability for the overpayment will be discharged. The bankruptcy processes of proof of debt and release of provable debts replace the processes of waiver and write off. (p.171-172)

In relation to the debt that arose after bankruptcy, the Tribunal referred to s.82 of the Bankruptcy Act 1966:

82 Debts provable in bankruptcy

4) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

It found that because the debt was incurred after bankruptcy, it was not provable under this section and the Tribunal could consider waiver.

Special circumstances waiver

Klewer gave extensive evidence, supported by medical evidence, about the debilitating conditions suffered by her son, Robert. These included epilepsy, significant loss of vision, and speech and mobility problems. Klewer also had a 30 per cent loss of hearing in her left ear and cardiac complaints. Her finances were limited, with her Trustee planning to sell the home. She also suffered considerable anxiety over a range of personal circumstances including an acrimonious marriage breakdown, divorce and child support arrangements. She had been prosecuted twice (in relation to her claim for rent assistance) and the charge was finally dismissed.

The Tribunal accepted that Klewer’s circumstances were sufficiently ‘special’ that the FTB debt of $317.55 should be waived.

Formal decision

The AAT set aside the decision under review, and substituted a decision that the Tribunal had no power to waive the debt of $4,918.40 and that the amount of $317.55 be waived on the grounds of special circumstances.

[R.P.]