Andrew Wily - Bankruptcy in Australia Part 2 – What happens once bankrupt?

Bankruptcy in Australia may be a viable option for some people who want to settle their outstanding credit problems. This article provides some important personal bankruptcy information on what will happen once you are bankrupt to your current assets, travelling outside of Australia and your present job once you are declared bankrupt.

What happens to my assets?

Pursuant to Sections 58 and 132 of the Bankruptcy Act, upon declaring bankruptcy control of your assets automatically vests in the Trustee. Other assets acquired during the period of bankruptcy, such as lottery winnings or inheritance from a deceased estate, also vests in the Trustee.

The law, however, provides that you may retain certain property, including:

• Personal effects, such as necessary clothes and household furniture;
• Property used in earning income, provided the value of the property is less than an indexed amount;
• Property used as a primary means of transportation, provided the value of the property is less than an indexed amount (i.e. car or motorbike);
• Property for educational purposes i.e. TV, DVD etc
• Property held in trust for another person, such as a child’s bank account;
• Life assurance and endowment assurance policies and proceeds thereof;
• Superannuation policies and proceeds thereof;
• Compensation from damages due to personal injury or wrongs to you, your wife, or your family;
• Property purchased through the proceeds of endowment and annuity policies, compensation from damages, or Rural Adjustment Schemes;
• Items of sentimental value, such as sports, military, cultural, or academic awards.

Moreover, if you are earning an income that is more than the value of a threshold amount, you are required to make regular income contributions of 50 cents after every tax dollar above the indexed amount.

What happens to my house?

The Trustee takes any equity you might have in your family home. This means that your house may be sold and the proceeds given to your creditors. If you are a joint-owner, the Trustee may sell your interest to a non-bankrupt joint-owner.

If you are falling behind in your mortgage repayments, a secured creditor can sell your house to make up for the shortfall in your payments. If the sale of your house exceeds the total amount you owe the creditor, the surplus is paid to the Trustee.

What happens to my car?

A vehicle that is used as a primary means of transportation and has a value not exceeding a prescribed limit can be retained during bankruptcy. Examples of this are a car or a motorbike. However, if the value of the vehicle is more than the prescribed amount, the Trustee takes your vehicle and sells it. The Trustee then gives back the value of the prescribed amount to you and retains the balance for your creditors. If two bankrupts own the vehicle, the relevant value is twice the prescribed amount.

What happens to my job?

Bankruptcy does not prevent you from working. Normally, your employer is not provided your personal bankruptcy information, unless you owe him/her money or you fail to pay your regular contributions. You are still required to file tax returns for any income received during bankruptcy.

There are certain professional licensing authorities that impose certain restrictions on members under bankruptcy. You should confirm with your licensing authority whether or not your bankruptcy affects your ability to practice your profession.

Can I travel overseas?

You may leave Australia to travel overseas, provided you obtain written consent from the Trustee. The Trustee may choose to impose certain conditions when giving you permission to travel.

What are my obligations during bankruptcy?

As a bankrupt, you are required to:

1. Inform the Trustee of all changes in name and/or address.
2. Obtain written permission from the Trustee if you wish to travel. You may also have to surrender your passport to your Trustee.
3. Inform the Trustee of all changes in income and assets.
4. Cooperate with the Trustee. You are required to provide all information asked of you, answer questions under examination, and attend meetings.

Failure to fulfil these obligations may lead to an additional two to five years onto the period of your bankruptcy.

For more information on what happens on becoming bankrupt? orhow to get your bankruptcy annuled or terminated?.

We hope this article has answered some of your general questions on bankruptcy in Australia. For further information contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.