By ADAM BROWN, Managing Director, Axia Litigation Lawyers – 20th August 2025

Yes — under Australian law, a bankruptcy trustee can still claim an interest in your assets even years after your bankruptcy discharge.

This surprises many Australians. A common assumption is that once you’re discharged from bankruptcy, all financial risks tied to it disappear. But a recent real-life dispute shows how failing to formally release a trustee’s interest in a property can result in significant and unexpected financial loss — years down the track.

A Sunshine Coast husband and wife jointly owned a property since 2001. In 2014, the wife was declared bankrupt. At the time, there was no equity in the property — in fact, the mortgage likely exceeded its market value.

Because there was no immediate financial benefit to realise, the bankruptcy trustee chose not to pursue the wife’s interest in the property.

The couple separated amicably in 2015. They agreed that the husband would retain the property and assume full responsibility for all outgoings — including mortgage repayments, council rates, and insurance. The wife’s name was not removed from the title of the property.

The wife was discharged from bankruptcy in 2017. Over the next few years, however, the property’s value skyrocketed. By 2020, its value had increased by more than $300,000.

Then came the unexpected twist.

In 2020, the trustee returned — demanding 50% of the net equity in the property. This demand was made despite the wife’s discharge three years earlier and despite the fact that she had made no financial contributions since 2014.

It may seem unjust, but the trustee’s claim was legally valid — and the law explains why. Under the Bankruptcy Act 1966 (Cth), certain rights relating to a bankrupt person’s property do not simply vanish upon discharge. Specifically:

• Sections 58 and 116: A bankrupt’s interest in property automatically vests in the trustee at the date of bankruptcy. In this case, it means that the trustee became legally entitled to the wife’s interest in the property when she became bankrupt.
• Section 129AA: The trustee’s vested interest in the remains with the trustee after discharge, unless the trustee formally releases it in writing. Discharge from bankruptcy does not re-vest property in the bankrupt.

In this case, neither the husband nor the wife obtained confirmation from the trustee that he had relinquished his interest in the property. Had this been done in 2014 when the wife became bankrupt, the trustee probably would have released his interest. Given that the trustee had not been asked to relinquish his interest, the trustee continued to have an interest in the property even after the wife was discharged. As such, the trustee was well within his rights to assert a claim.

Although the trustee had a legitimate claim, the husband was not left financially stranded. He was entitled to recoup the costs that he had incurred to maintain and improve the property since 2014.

These included:

• Mortgage repayments
• Council rates
• Insurance
• Various renovations

These expenses were factored into the calculation of the final equity. The husband was required to pay the trustee 50% of the net equity — meaning the property’s value at the time, less the mortgage balance, less the outgoings that he had covered since 2014.

This case highlights a crucial point: Discharge from bankruptcy does not automatically release vested property interests.

Even after separation, and even years after discharge, a bankruptcy trustee may retain a valid claim — particularly where jointly owned assets such as property are involved. The right to claim remains in place until it is formally released.

If that step is never taken, the trustee can reassert their interest — especially if the asset has increased in value.

If you think bankruptcy is behind you, or you’ve separated from someone who was previously bankrupt, this case shows why it’s important not to assume the issue is settled.

Here are some key situations where early legal advice can protect you:

• You’re currently going through bankruptcy or considering voluntary bankruptcy
• You own property jointly with a spouse or partner who is bankrupt or was recently bankrupt
• You’ve separated and believe you now hold full rights to the property
• You’ve received a discharge and assume the trustee no longer has any claim over property that you owned prior to bankruptcy
• You’ve made significant financial contributions to the property that haven’t been formally documented

A lawyer can help you formally resolve the trustee interests and ensure your financial future isn’t left vulnerable to claims years later.

At Axia Litigation Lawyers, we understand that bankruptcy law can be complex, especially when it intersects with property rights and separation.

With over 50 years of combined experience in litigation and dispute resolution, our lawyers provide strategic guidance that’s tailored to your specific situation. We act quickly, think commercially, and focus on protecting what matters most to you.

If you’re dealing with a bankruptcy-related property issue, don’t leave it to chance. We can help you:

• Understand your current legal position
• Clarify whether a trustee retains an interest in property
• Negotiate or resolve claims with the trustee
• Safeguard your long-term financial security

Get in touch with our team today to arrange a confidential consultation.