To permit an honest debtor, who has been unfortunate in business, to obtain relief from his/her creditors; and

To provide a regime whereby the creditors of a bankrupt can  pursue their claims by collective action through a Trustee so that the assets of the bankrupt can be realized and distributed on an equitable basis subject to the rights of secured creditors and the priorities of preferred creditors.

All unsecured claims against the bankrupt as at the date of bankruptcy are stayed.  This is the immediate relief a consumer debtor obtains, and the main reason for the bankruptcy;

The trade off is supposed to be that all of the bankrupt’s property in existence as at the date of bankruptcy, or acquired thereafter up to the date of the bankrupt’s discharge, vests in his or her Trustee for distribution among the bankrupt’s unsecured creditors.  However, in the case of property with a registered  lien or mortgage, the Trustee’s interest only attaches to any equity available in the property, and the Trustee is not entitled to any  property held in trust by the bankrupt for third parties, or any  property exempt from seizure or execution by statute (like the  $5,000.00 exemption for an automobile).  In a  typical consumer bankruptcy situation, there aren’t any significant assets for the Trustee to seize and sell and thus there is usually  little or no return available for  the unsecured creditors;

The Trustee has the power to review the affairs and conduct of the bankrupt with a view to setting aside any payments made or assets transferred by the bankrupt to third parties prior to bankruptcy if these payments or transfers constitute a preference, settlement, or reviewable transaction.  However, Trustees are running a business themselves, and unless there are assets that can be converted to cash to fund litigation they generally will not spend their own money to litigate these matters.  Under the Act there are procedures to allow a creditor to take over a Trustee’s right to pursue such transactions and thus the onus shifts to the individual creditors to take (and pay for) action;

Individual bankrupts are required to make monthly “surplus income” payments to their Trustee in accordance with published guidelines.  In a typical consumer bankruptcy situation, the bankrupt is not a high income earner and has dependents.  The reality is that these surplus payments are usually just enough to cover the Trustee’s fees and disbursements (with nothing left for the unsecured creditors);

First time individual bankrupts are entitled to an absolute discharge from bankruptcy after nine months unless an objection is filed by a creditor, the Trustee, or the Official Receiver.  First time consumer bankrupts cross their fingers and hope no one files an objection thereby allowing them to get in and out of the bankruptcy system after nine months, and with relative ease (except for those bankrupts who still attach a stigma with going bankrupt);

If a bankrupt is required to proceed to a discharge hearing, the Registrar will consider the circumstances and either grant an absolute discharge, or refuse or suspend the discharge, or order that the bankrupt has to pay a sum of money to his or her Trustee as a condition of being discharged.  An absolute discharge will be granted if the bankrupt can show the objections are not valid and that he or she “can not justly be held responsible” for going bankrupt.  Refusals are only ordered in the rarest of cases where the bankrupt has engaged in really offensive conduct.  The most common disposition at a discharge hearing is for an order to be made that the bankrupt’s discharge is to take effect after the bankrupt pays a certain sum of money to his or her Trustee, usually in monthly instalments of between one to three years.  However, the amount of the monthly payments will depend on the bankrupt’s monthly household income and expense situation and much reliance is usually placed on the guidelines referred to above for determining “surplus income”.  Again, unless the bankrupt is a high income earner these monthly  payments may be a lot for the bankrupt but provide little or no return to the unsecured creditors;

Upon being discharged from bankruptcy, all claims against the bankrupt in existence as at the date of bankruptcy, which were stayed,  are released and discharged.  There are some exceptions.  Most notably these are for family law support obligations,  debts incurred by fraudulent misrepresentation, and criminal fines or penalties.  These claims continue to survive and can be pursued against the bankrupt.