Bankruptcy Advice Australia

Bankruptcy anticipates a minimum standard of living and as such as a bankrupt you will be entitled to retain certain assets subject to statutory limits. These limits are indexed and updated by ITSA every six months.
The assets which you will be able to retain (ie they will be protected under bankruptcy) include:

• Cash at Bank – limit of up to $2,000
• Motor vehicle – limit of up to $7,050
• Tools of trade – limit of up to $3,500
• Superannuation
• Household goods and clothing

Cash at Bank in bankruptcy
At the time of becoming bankrupt, you are entitled to keep $2,000 from the proceeds in your bank account (applying the ITSA Bankruptcy administration practice note). Therefore if you have more than that amount in your account at the date of bankruptcy, then the Trustee in Bankruptcy would be entitled to claim the excess amount. For example if you had $3,000 in your bank account at the date of bankruptcy, then your Trustee in Bankruptcy could claim $1,000 from your bank ($3,000 – $2,000).
Motor vehicle in bankruptcy
You will be entitled to keep your motor vehicle if (at the date of bankruptcy) it is worth less than $7,050. If your motor vehicle is worth more than $7,050 your Trustee in Bankruptcy would be entitled to sell the motor vehicle, however, the Trustee would need to provide you with the protected amount ($7,050) from the sale proceeds.
If your motor vehicle is assessed to be worth more than the protected amount ($7,050) then it would be best to try and reach agreement with your Trustee in Bankruptcy to pay the amount which exceeds the protected value. A bankrupt cannot own assets so your spouse or a family member would need to purchase the vehicle from the Trustee in Bankruptcy and pay the excess amount over the protected value. For example if you became bankrupt and your motor vehicle was assessed to be worth $10,000, then your spouse or a member of the family could offer to buy the vehicle from the Trustee in Bankruptcy for approximately $2,950 ($10,000 – $7,050).
Tools of trade in bankruptcy
You will be entitled to keep your tools of trade (at the date of bankruptcy) if they are worth less than $3,500. If your tools of trade are worth more than $3,500 (collectively) your Trustee in Bankruptcy would be entitled to sell them, however, the Trustee would need to provide you with the protected amount ($3,500) from the sale proceeds.
If your tools of trade are assessed to be worth more than the protected amount ($3,500) then it would be best to try and reach agreement with your Trustee in Bankruptcy to pay the amount which exceeds the protected value. A bankrupt cannot own assets so your spouse or a family member would need to purchase the tools of trade from the Trustee in Bankruptcy and pay the excess amount over the protected value. For example if you became bankrupt and your tools of trade were assessed to be worth $10,000, then your spouse or a member of the family could offer to buy the tools of trade from the Trustee in Bankruptcy for approximately $6,500 ($10,000 – $3,500).

Superannuation in bankruptcy
Superannuation is generally protected in bankruptcy so as to allow a discharged bankrupt a pension in retirement. The only exception to this general rule is if you made significant contributions into your superannuation fund prior to bankruptcy. The Trustee in Bankruptcy would need to establish that the contributions made into the superannuation fund were made to defeat creditors. The test for the Trustee in Bankruptcy would be to examine the pattern of contributions into the superannuation fund. So if for example you made regular contributions into the superannuation fund (direct from your wage) then those contributions would not be challenged. However, if you made regular contributions into the superannuation fund (directly from your wage) but then arranged for a “lump sum payment” contribution to be paid prior to bankruptcy, then the Trustee in Bankruptcy would most likely challenge the “lump sum payment”.
If the Trustee in Bankruptcy challenged a “lump sum payment” which was to defeat creditors the Trustee could apply to the Official Receiver for a notice to be issued under Sec. 139ZQ to be issued to recover the “lump sum payment”.

Household goods and clothing
Necessary house-hold items are also protected in bankruptcy. The Bankruptcy Act anticipates a minimum standard of living and as such as a bankrupt you will be entitled to retain necessary household items including:

• Sufficient household furniture including:
• Bedding, linen, towels and other household effects
• General household items including:
• Educational, Sporting and recreational items
• Kitchen equipment, cutlery, crockery etc
• Fridge / Freezer
• Heating and cooling equipment
• Telephone equipment
• Television (1) & Stereo/HiFi (1) & Video recorder (1)
• Sporting equipment
• Washing Machine & Clothes Dryer

If you become bankrupt and hold more property than what is listed above, then it would be at the discretion of your Trustee in Bankruptcy to collect and sell it for the benefit of creditors. It is possible for a bankrupt to retain sentimental property if that property was disclosed and a special resolution is passed by creditors for the sentimental property to be retained by the bankrupt.