If you have become unable to pay your debts and you cannot make any suitable repayment arrangements with your creditors, then you may voluntarily lodge a petition to become bankrupt. When you declare bankrupt a trustee is appointed to administer your bankruptcy. This process may involve selling certain assets to repay creditors (individuals you owe money to). Assets are items of property that an individual owns which are considered to have value and can be used to meet debts or commitments (for example property).
What happens to an individual’s assets during bankruptcy?
Under the current legislation (Bankruptcy Act), bankrupt individuals are allowed to keep certain assets. These assets include:
- Vehicles such as cars and motorbikes used for transport purposes (with equity up to $7,500)
- Ordinary household items
- Tools that are used to earn income (currently up to $3,650)
- Life insurance policies for you and your spouse (includes any proceeds received after bankruptcy)
- Certain superannuation funds
- Compensation received from a personal injury claim (from a period before or after an individual declares bankruptcy)
- Assets that you hold on trust for another individual
What assets can the trustee sell?
Other than the assets which you are permitted to retain, the trustee can sell any asset including any that are overseas or in another person’s possession. Examples of assets which the trustee might sell include the following:
- Property (for example houses, apartments etc.)
- Non-exempt motor vehicles
- Tax refunds earned prior to declaring bankruptcy
- Competition prizes (for example lottery winnings)
In a situation where a bankrupt individual owned an asset with another individual, the bankrupt’s share in the property can be sold by the trustee. If the co-owner is not bankrupt the trustee may agree to sell the bankrupt’s share at market price to them.
The bankrupt’s trustee also has the power to investigate assets which the individual previously owned before bankruptcy. If the bankrupt individual sold an asset for an amount lower than their value prior to bankruptcy, the trustee may recover those assets.
What happens to a bankrupt individual’s business or employment after bankruptcy?
The current legislation in Australia does not restrict a bankrupt individual from being employed and earning income during the period of bankruptcy. However, there are some restrictions, which include:
- An undischarged bankrupt cannot act as a company director.
- A partnership dissolves in the event of a partner becoming bankrupt.
- Any interest which an individual has in a business vests in the trustee upon bankruptcy. However, there are certain legal restrictions on the trustee carrying on the business.
- If a bankrupt’s income after tax exceeds a certain amount then they will be required to make a contribution to the estate. The amount of the contribution varies depending on the amount the individual earns and the number of dependants. A dependant is an individual which resides with you, wholly or partially relies on you for economic support and earns less than a specified amount.
The following table provides the contribution amounts.
|
Annual Income (Net of Tax) |
No. of DEPENDANTS |
|||
|
0 |
1 |
2 |
3 |
|
|
50,000 |
0 |
0 |
0 |
0 |
|
75,000 |
10,860 |
6,060 |
3,670 |
2,330 |
|
100,000 |
23,360 |
18,560 |
16,170 |
14,830 |
|
125,000 |
35,860 |
31,060 |
28,670 |
27,330 |
|
150,000 |
48,360 |
43,560 |
41,170 |
39,830 |
(Annual income contributions to the nearest $10)
Here at The Quinn Group, our team of Lawyers and Accountants can provide you with advice and assistance in regards to the bankruptcy process. If you are struggling with your debts and want to file for bankruptcy, we may be able to provide you with some alternatives or help make the process as easy as possible for you. Contact us now on 02 9223 9166 or submit an online enquiry form.
