WA Relative's Oral Contract with Bankrupt - Illegal Contract?

[troubled relative]

A relative asked a person to hold onto a large amount of money for them and then declared themselves bankrupt. They said to the person holding the money that they could use money as a deposit on property they wanted to purchase as the person could not use it for at least three years but now they are out of bankruptcy sooner than expected and is now demanding this money back in a civil court claim saying they had oral contract to pay back within 12months. Is this an illegal contract and can the court adjudicate on it .
P.S. the person is no longer a bankrupt as they have cleared the debts as bankruptcy have sold a joint property they owned and paid creditors .

 

[Sarah J]

Hi Troubled Relative,

1. I'm not too clear on this matter, but certain transactions/disposals/payments made within a certain period before a person enters into bankruptcy may be void if the person made the payment with the view of evading creditors. This is an offence in itself.

2. If the payment was valid, then it becomes a matter of proving an oral contract. It is always difficult proving an unwritten contract. Do you have any indirect evidence (e.g. email or text correspondences) that support your version of the facts? Are you disputing the nature of the payment (i.e. it was a gift rather than a loan) or just the period of the loan (i.e. 3 years vs. 1 year)?

 

[troubled relative]

Hi Troubled Relative,

1. I'm not too clear on this matter, but certain transactions/disposals/payments made within a certain period before a person enters into bankruptcy may be void if the person made the payment with the view of evading creditors. This is an offence in itself.

2. If the payment was valid, then it becomes a matter of proving an oral contract. It is always difficult proving an unwritten contract. Do you have any indirect evidence (e.g. email or text correspondences) that support your version of the facts? Are you disputing the nature of the payment (i.e. it was a gift rather than a loan) or just the period of the loan (i.e. 3 years vs. 1 year)?

the money was given 4.5months before person went bankrupt and not advised to bankrupt cy and am also disputing time loan was given for

 

[Sarah J]

Hi Troubled Relative,

Just to confirm, did the relative enter into voluntary bankruptcy? Therefore, the relative was not declared bankrupt by a creditor?

It is probably best to contact a bankruptcy lawyer, since as I mentioned before, I am not familiar with bankruptcy law in WA. However, certain actions by a bankrupt may be unlawful. These include:

• Disposing of property within a certain of time (statutorily mandated) before declaring themselves bankrupt where the intention is to evade payment to creditors or to keep the property from the hands of creditors
• Failing to disclose any property to the trustee in bankruptcy

This means, the initial disposal (loan) may have been unlawful and may have been void. If this is the case, you will most likely need to return the money (you should be able to enter into some sort of payment arrangement) so that the money can be distributed to creditors of your relative (if there is still money owing to creditors). Otherwise, if this was in fact a loan, then your relative should have disclosed the value of the loan and terms of repayment to the trustee in bankruptcy as this constitutes a material asset. Again, your relative could get in trouble for failing to disclose. However, if the bankruptcy is over and all creditors have been paid in full, then the trustee may not worry about claiming against your relative for breaches to the Bankruptcy Act.

The actual terms of repayment for the loan is a separate issue to bankruptcy. This is a matter of proving an oral contract. Was anything written down at all? As mentioned in my previous post, this is a matter of proving to the court (or arbitrator) which oral version of the terms is correct. This means, who ever has more evidence to support their version of the term of loan and whoever's evidence is more credible, has a higher chance of having their version of terms believed. If your relative initiates action against you for repayment, then the main burden falls on them to prove on the balance of probabilities that (i) they loaned you the money rather than gifted it to you; (ii) you are to repay this money (and any interest); (iii) repayment is by a particular date/period.

 

[troubled relative]

Yes she entered into voluntary bankruptcy. The property was bought in relatives name and they had to take out a very large interest only loan from bank as they were hoping to sell their home and then pay off the bank . they would then get A granny flat for sister to live in on the property . It would be a transportable and the title would be in her name so that she could will it to her children However she decided she did not want to live onthe property in that area or with them and have left them in the lurch as they have to look after both homes which are 100 klms apart and pay off the interest only loan at over $4000 every 4 weeks And now she is taking them to court to demand back the money saying it was a loan.