“What will happen to my assets if I declare myself bankrupt?”
This is a question we hear a lot, and for good reason. There’s a lot of uncertainty about how trustees go about investigating and realising particular assets, especially the family home.
When someone is declared bankrupt, some of their assets are protected against being accessed by the trustee. However, the trustee can realise the value of those assets if they’re over the threshold specified in the Bankruptcy Act 1966 (The Act) and by the Australian Financial Security Authority.
Assets protected by The Act
Here’s a list of assets a bankrupt individual may own that are protected by The Act (based on the thresholds as at 28 October 2015):
- Reasonable cash at bank (to provide for immediate living expenses)
- Motor vehicle/s up to a value of $7,600 (indexed amount) used primarily as means of transport (excluding any finance owing on the vehicle/s)
- Tools of trade up to an amount of $3,700 (indexed amount) used to earn an income
- Personal household items such as furniture
- Assets held on trust (e.g. family trust or child’s bank account)
- Compensation from a personal injury claim, and any assets bought with that compensation
- Life insurance policies for the bankrupt (or their spouse), and the proceeds from these policies received after the bankruptcy
- Awards with sentimental value such as sporting and cultural medals or trophies
- Balances in and payments from regulated superannuation funds received on or after the date of bankruptcy.
Assets not protected by The Act
Once an individual declares bankruptcy, any assets not protected by The Act are effectively controlled by the trustee (unless the property is specifically exempt). The trustee has the power and authority to not only take physical possession of the assets, but also sell them.
This means the bankrupt individual will probably lose:
- Any house or land that they own (unless a joint owner buys their interest or some other arrangement is made)
- Stocks and shares
- Valuable furniture and jewellery
- Gifts and inheritances received under a will
- Motor vehicles and tools of trade over the threshold limit
- Lottery winnings and other prizes.
Penalties for improper disposal of property
If the bankrupt individual tries to dispose of property at less than market value, or to defeat creditor claims, the transaction may be deemed an undervalued transaction or even an illegal transfer. And if that happens, the trustee may be able to recover items given away or sold for less than market value in the five years before bankruptcy was declared.
Let us help you sort out your financial issues
To find out how bankruptcy could affect you, or to discuss what other options are available to you, get in touch with the team here at Rapsey Griffiths. We can talk about your situation, and help you come up with a solution that works for you.