In bankruptcy certain assets are able to be sold by your trustee and certain assets are ‘protected’ and you can keep them. Sometimes determining whether an asset can be sold involves complex issues, however, there are some general principles which apply.
Below we look at common assets which bankrupts may own, or become entitled to during their bankruptcy.
If you own an interest (or partial interest) in real property, your bankruptcy trustee can sell it. If you jointly own a property with another person then one option may be for that person to purchase the equity in the property from you before bankruptcy (for fair value, after taking into account any mortgages) or from your bankruptcy trustee.
In bankruptcy you can keep a motor vehicle (used primarily for transport) which is valued under the statutory threshold. If you have a motor vehicle that is financed, then the statutory threshold only applies to any equity in the vehicle. If you haven’t paid off the vehicle, the amount that counts towards the limit is its value minus what you still owe, i.e. if you have a vehicle worth $12,000 which has a $10,000 loan, then the equity is $2,000.
Cash at bank
Your bankruptcy trustee may let you retain a small amount to meet your living expenses, possibly between $1,000 to $3,000. But, If you have any significant amounts of cash at bank you will have to pay it to your bankruptcy trustee. If you hold funds in a joint bank account, your bankruptcy trustee will likely have a claim to your share of the funds.
Superannuation is generally not able to be accessed by your bankruptcy trustee. But it can depend on how it is paid:
If you receive a superannuation payment before bankruptcy then any funds which you still hold from this payment will have to be paid to your trustee;
- If you receive a lump sum payment(s) of superannuation after bankruptcy, you can retain it. Lump sum payments are not income for the purposes of bankruptcy; however
- If you receive an annuity or pension from your super fund, this will likely be income and subject to the rules set out below relating to income contributions.
Tools of trade
In bankruptcy you can keep tools of trade which you use to earn an income, as long as they are valued below a statutory amount, which is indexed and increases each year.
Furniture and belongings
You can keep your household furniture and belongings in bankruptcy, provided they have a reasonable and not excessive value.
“After acquired property” – assets acquired after bankruptcy
If you acquire or become entitled to certain assets, such as gifts or winnings, or an entitlement to receive an inheritance, whilst you are bankrupt, they can be recovered by your bankruptcy trustee. These assets are referred to as “after acquired property”.
In bankruptcy, your income is not automatically paid to your bankruptcy trustee. However, if your after tax income exceeds the statutory threshold you will have to pay one-half of your after tax income over the threshold to your trustee. You may use our Income Contribution Calculator to estimate the income contributions you are liable for.
If you have to pay amounts to your bankruptcy trustee from your income, commonly they will set up a payment plan so that you have to pay the required amount in weekly, fortnightly or monthly instalments. This will apply each year for the three year period of your bankruptcy.
Contact us for advice and assistance
If you are considering bankruptcy it is best to get advice about what its effects may be, so please contact Pearce & Heers at our Brisbane or Gold Coast offices for an initial obligation-free consultation.