There are no restrictions on a bankrupt being employed and earning an income during the period of their bankruptcy. However, if a bankrupt’s after-tax income exceeds a certain amount they will have to pay contributions from their income to their Trustee.

How is a Bankrupt’s Income Assessed by their Trustee

Commonly a bankrupt’s Trustee will assess a bankrupt’s income at the start of each year of the period of the bankrupt’s bankruptcy. The Trustee will base the assessment on information and documentation which a bankrupt is required to provide, such as a questionnaire regarding the bankrupt’s income, pay-slips, bank statements, payment summaries and tax returns.

The Trustee will then issue the bankrupt with an income assessment setting the amount of income contributions which a bankrupt is required to pay (if any) and the Trustee may allow the bankrupt to pay the total amount of income contributions required by instalments.

How Much Income Can a Bankrupt Earn Before Paying Income Contributions

A bankrupt is required to pay income contributions if their net income (after tax and after certain other “deductions”) exceeds a threshold amount. The threshold amount is generally increased twice each year and is contingent on how many dependants a bankrupt has, with the more dependants a bankrupt has increasing the threshold.

A dependant is defined in the Bankruptcy Act 1966 (Cth) as a person:

  • Who resides with the bankrupt;
  • Who is wholly or partially dependent on you for economic support; and
  • Whose income is less than a certain indexed amount.

What is Income for the Purposes of Bankruptcy

Section 139L of the Bankruptcy Act 1966 (Cth) defines income for the purposes of bankruptcy as having its ordinary meaning, but makes a number of qualifications as to what is income.   In this regard, various amounts received by a bankrupt or which are paid for the benefit of a bankrupt may be income, including:

  • Wages and salary;
  • Tax refunds;
  • Taxable fringe benefits;
  • Superannuation received;
  • Profits from being a sole trader;
  • Certain loans from associated entities;
  • Income earned by a bankrupt which is paid to a third party; and
  • Superannuation contributions in excess of required statutory amounts.

Deductions for Child Support Payments and Other Amounts

Certain deductions are made by a Trustee when assessing a bankrupt’s net after tax income, including payments made by a bankrupt under a maintenance agreement or order pursuant to the Family Law Act 1975 (Cth).

Consequences of Failing to Pay Income Contributions or Provide Information Regarding Income

If a bankrupt fails to provide information regarding their income to their Trustee when requested to do so, the Trustee may lodge an offence referral with AFSA which may result in the bankrupt’s prosecution and/or the Trustee may object to the bankrupt’s discharge from bankruptcy which may result in the bankruptcy being extended by a further 5 years.

If a bankrupt fails to pay income contributions to their Trustee then the Trustee may:

  • Arrange to garnishee amounts from wages payable to the bankrupt; and/or
  • Object to the bankrupt’s discharge from bankruptcy which may result in the bankruptcy being extended by a further 5 years; and/or
  • Obtain a judgment for the amount of the unpaid income contributions and take enforcement action against the bankrupt; and/or
  • Require a bankrupt to open a supervised bank account into which all income must be paid.

Application for Hardship

A bankrupt may make an application to their Trustee for “hardship” in exceptional circumstances where they incur extraordinary expenses relating to:

  • Ongoing medical expenses;
  • Costs of child care which is essential for work;
  • Particularly high rent when there are no alternatives available;
  • Substantial expenses of travelling to and from work;
  • Loss of financial contribution, usually as a result of a spouse ceasing employment.

If an application for “hardship” is successful it will result in a reduction of the amount of income contributions which a bankrupt is required to make.

Review of Income Assessments or Hardship Determinations

If a bankrupt disputes the amount of an income assessment made by their Trustee including their Trustee’s decision regarding an application for “hardship” then a bankrupt may request a review of the Trustee’s decision by the Inspector-General. The request for review needs to be lodged within 60 days of the bankrupt being notified of the assessment or determination.

Advice Regarding Bankruptcy and Income Contributions

You may use our Income Contribution Calculator to estimate the income contributions you are liable for.  If you wish to discuss this article, or your circumstances, please don’t hesitate to contact Pearce & Heers Brisbane or Gold Coast office and our experienced staff will be able to assist you.


We’re happy to answer any questions you may have, so please don’t hesitate to call us and schedule a consultation.



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