To assist in advising those on the brink of personal insolvency, here is a broad overview of the bankrupt’s entitlement to hold on to certain assets and income during the period of bankruptcy.


When an individual is declared bankrupt, certain assets are protected from being accessed by the trustee. The trustee can realize the value of those assets which are over the threshold specified in the Bankruptcy Act 1966 (Cth) (Act).
A bankrupt will generally be allowed to keep hold of the following (based on current thresholds, which are reviewed from time to time):

  • 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) (s 116 of the Act)
  • tools of trade up to an amount of $3,700 (indexed amount) used to earn an income (s 116 of the Act)
  • most personal household items such as furniture
  • assets held on trust (eg family trust or child’s bank account)
  • compensation received from a personal injury claim (whether received before or after bankruptcy) and 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
  • most balances in and payments from regulated superannuation funds received on or after the date of bankruptcy

A bankrupt will likely lose the following:

  • Any house or land that they own (unless a joint owner buys their interest).
  • Stocks and shares
  • Valuable furniture and jewellery
  • Gifts and inheritances received under a will
  • Motor vehicles and tools of trade over the threshold limit

If a bankrupt tries to dispose of property to defeat creditor claims or at less than market value, the transaction may be deemed to be an undervalued transaction or illegal transfer. If so, the trustee may be able to recover items given away or sold for less than market value in the 5 years preceding bankruptcy.
In many cases a bankrupt is concerned about the impact bankruptcy will have on the family home. Learn more here. We have covered this topic in detail in a separate article title Bankruptcy and House (Click to read more).


Bankrupts are required to pay to the trustee 50% of the amount which exceeds the income threshold pursuant to the Act. The threshold depends on how many dependants the bankrupt has (namely, those who reside with the bankrupt, wholly or partly rely on them for economic support and if the dependant’s income is below a certain amount).
The current threshold amounts (as at 28 October 2015, updated bi-annually) are:

 Company 1 Company 2 Company 3 
Winding upLiquidation Low ($)Liquidation High ($)Liquidation Low ($)Liquidation High ($)Liquidation Low ($)Liquidation High ($)
Estimated dividend to priority creditorsN/AN/ANilNilN/AN/A
Estimated Return to unsecured creditors (c/$)5.78%10.58%NilNil53.28%53.70%
% of total group debt 88%7%5%
Timing of return (from date of liquidation)12-18 monthsN/A2-4 months
The following simple example shows how income contributions for a bankrupt with 2 dependents is calculated:
Bankrupt’s Income after tax $70,000.00
Threshold $67,666.24
Excess over threshold $2,333.76
Contribution due (50%) $1,166.88
Based on the above scenario the bankrupt would be required to contribute $1,166.88 per year to their trustee. This amount will generally payable via instalments.


All of the bankrupt’s unpaid unsecured debts are written off at the conclusion of the bankruptcy. Unsecured debts are those debts where there is no security or charge securing the debt such as a mortgage. Written off debts can include those debts relating to credit cards, personal loans, utilities, unpaid employee entitlements, trade creditors and unpaid rent and medical fees. Secured debtors will have the right to take possession of their security.
Some debts will not be extinguished meaning they will not be written off and will survive bankruptcy such as:

  • debts incurred after bankruptcy
  • court impose penalties and fines such as speeding fines
  • debts incurred by fraud
  • maintenance debts, including child support
  • accumulated HECS and HELP debts
  • The ATO can use a bankrupt’s tax refund or credits to offset Commonwealth debts such as debts owed to the ATO.

For more information on bankruptcy and personal insolvency review the resources below or contact us today for a confidential consultation.



From sudden employment and over-reliance on credit to relationship breakdowns and ill health, there are many reasons why people suffer financial hardship and experience unmanageable debt. If an individual cannot pay their debts they may and haven’t been able to reach an agreement with creditors, they may declare themselves bankrupt. Bankruptcy can either be voluntary or involuntary.


Declaring bankruptcy voluntarily in Australia is a straight forward process and involves completing two separate forms and lodging them with the Australian Financial and Security Authority. This article outlines declaring bankruptcy in four step.


Annulment is effectively the cancellation of a bankruptcy. This article outlines the three ways a bankruptcy may be annulled.


While bankruptcy doesn’t directly affect your employment, it may have consequences if you hold various licences or qualifications including building, property management, liquor and financial brokerage licences.


If an individual is made bankrupt, it is not necessarily the case that their house will be sold from under them. Given that in most bankruptcy cases we are dealing with the family home, it pays to have knowledge in this field to provide the best outcome for your client and hopefully “save the house”.


Family assets are commonly protected by the use of a structure named a discretionary trust (sometimes referred to as a ‘family trust’). This type of trust provides a firewall of protection for family trust assets.


The discharge of bankruptcy means that the individual is no longer bankrupt.
The date of discharge of bankruptcy will vary depending on the type of bankruptcy.


There are many ways a creditor can seek to recover payment of a debt from an individual who cannot, or refuses to, pay that debt. This article covers the rights and obligations of individuals facing debt collection and exposed to legal action and enforcement.



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