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The Bankruptcy Act 1966 does not restrict you (the bankrupt) from being employed and earning an income during your bankruptcy. However, if your after-tax income exceeds a certain amount you will have to pay contributions from your income to your trustee.
The Bankruptcy Act does not require bankrupts to disclose their bankruptcy when applying for employment. However, a prospective employer might ask for this information or choose to search the National Personal Insolvency Index (NPII) to find out.
Many professional associations and licensing authorities have their own conditions around bankruptcy of their members. This is not regulated by the Bankruptcy Act and is at the discretion of the each body. You should confirm directly with the organisation of which you are a member as to whether bankruptcy will affect your professional membership or your ability to practice a particular trade.
Under the Corporations Act 2001, bankrupts are prevented from managing corporations unless they obtain approval from the court. The Corporations Act is administered by the Australian Securities and Investments Commission (ASIC) and enquiries about companies should be directed to ASIC.
What happens to my income while I am bankrupt?
If your after-tax income exceeds a certain amount you will have to pay contributions from your income to your trustee. You will be required to pay half of the amount you earn above your threshold (see below) to your trustee.
Your trustee will calculate the amount you are liable to pay for each year of your bankruptcy and will send you a notice of assessment that outlines the total amount due, instalments (if applicable) and how to make your payments.
What is "assessed income"?
The Bankruptcy Act defines what the trustee should include when assessing the income of a bankrupt. It is important to note that this differs from the Australian Taxation Office’s (Tax Office) assessment of taxable income.
The trustee’s assessment will include (but is not limited to) a consideration of your:
- wages and salary from all jobs
- tax refunds
- taxable fringe benefits
- salary sacrifice arrangements
- superannuation receipts, annuities and pensions
- business profits
- loans from associated entities
- income you earn which is paid to someone else (including to a company or trust)
- superannuation contributions in excess of 9% made by an employer that arise from an industrial agreement solely between you and your employer
- income earned overseas.
Expenses
Expenses will be treated differently by your trustee compared to how the Tax Office treats them and will be determined based on the specific circumstances.
What is the threshold?
The Bankruptcy Act sets out the criteria for calculating the threshold. The threshold that applies to you will depend on how many dependants you have. The Bankruptcy Act defines a dependent as a person who satisfies all three of these criteria:
- the person resides with you
- the person is wholly or partially dependent on you for economic support
- the person’s income is less that a certain amount.
Please note: there is a range of factors that will have an impact on the calculation of your assessed income for contributions purposes. Contact us or your registered trustee for an estimate based on your circumstances.
Information you need to provide to your trustee
You must disclose all of your income and benefits and any other information reasonably requested to your trustee. If you fail to do so penalties may apply. You must also advise your trustee immediately if your income or number of dependants changes, or if you think these details will change in the next 12 months.
Consequences of non-payment
The obligation to pay your income contributions is contained in the Bankruptcy Act. If you do not comply with your trustee’s payment schedule, the trustee may consider one or all of the following:
- automatically deducting funds from your income or bank account without your consent (garnisheeing)
- objecting to your discharge and extending your bankruptcy by five years and assessing additional contributions for this period
- obtaining a judgment for unpaid contributions and taking enforcement action against you after you are discharged
- requiring you to open a supervised bank account into which all your income must be paid and from which any withdrawals must be authorised by the trustee.
Hardship variations
There are specific hardship provisions in the Bankruptcy Act which are limited to exceptional circumstances that would impose an excessive financial burden. The list of what constitutes “hardship” for the purposes of the Act is specific, and your trustee does not have discretion to grant hardship for expenses that aren't listed in the Bankruptcy Act. The exceptional circumstances are:
- ongoing medical expenses
- costs of child day care 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 made by your spouse, to the costs of maintaining your household.
Applications for hardship must be in writing, must explain why you will suffer hardship and must include documentary evidence of your income and expenses. Your trustee will make a decision on your application within 30 days after receiving your application and sufficient supporting evidence and will give you a written notice setting out the reasons for their decision.
Review of income and hardship assessments
If your trustee completes an income assessment and you disagree with the outcome, you should contact your trustee in the first instance. The same applies if you are dissatisfied with a decision made by your trustee regarding a hardship request.
If you still disagree you may request a review of the trustee’s decision by the Inspector-General. The request for review needs to be in writing and must be lodged within 60 days of you being notified of the assessment. You must still make payments during the appeal period.
Frequently asked questions
Will my employer be notified of my bankruptcy?
Not generally, but they may be notified in the following circumstances:
- If your employer is a listed creditor in your bankruptcy, they will receive notification of the bankruptcy and any reports issued by the trustee.
- If you are required to pay compulsory contributions and you fail to do so, a garnishee notice may be issued to your employer that requires them to pay a portion of your wages directly to the trustee. If an employer does receive a garnishee notice, it is an offence for them to dismiss a bankrupt because the notice was issued.
- Please note any person, including your employer, is able to conduct a search of the National Personal Insolvency Index (NPII) at any time to obtain information about any current or past insolvency arrangements that you have been a party to.
How does bankruptcy affect my employment?
Bankruptcy generally does not prevent you from working. However, if you are engaged in particular trades or professions there may be certain restrictions imposed by professional associations or licensing authorities. You should contact your professional association or licensing authority to confirm whether there is any effect on your membership or ability to practice a particular trade. View the list of some trades/professions where restrictions may apply [90KB PDF].
It is important to note that this is not a comprehensive listing and you are encouraged to contact the relevant licensing authority or professional body to obtain further information.
I am bankrupt and I receive child support payments. How are these receipts treated?
Child support payments received are NOT included in the calculation of assessed income.
I am bankrupt and I pay child support. How are these payments treated?
The trustee will assess the evidence you have available regarding your child support liability:
- If your payments are assessed by the Department of Human Services (the Child Support Agency), the full amount you have been assessed as liable to pay will be deducted from your net income.
- If you have a Family Court order requiring you to pay an amount of child support, the full amount you have been assessed as liable to pay will be deducted from your net income.
How are tax refunds and offsets treated?
This will depend on your individual circumstances. As a general rule:
- If the Tax Office is a creditor in your estate, it can keep any tax refunds to satisfy the tax debt owed.
- If the refund claimed by the Tax Office was for a post-bankruptcy tax period, the amount will also be included as income in that contribution assessment period.
- If the Tax Office does not claim your refund and it relates to a pre-bankruptcy tax period, the full amount vests in the trustee.
- If it relates to a post-bankruptcy tax period, the amount of the refund is included as income in the relevant contribution assessment period.
Will a child be considered as a dependant if they reside with me part-time?
This will need to be assessed on a case-by-case basis.
The trustee will consider whether the person is wholly or partly dependant on you for economic support, the person’s income, the percentage of time spent with you and whether you pay child support for the child.
If I use my income to buy shares, will the dividends be treated as income for contributions purposes?
Bankrupts cannot keep assets (including shares) that they acquire after their date of bankruptcy and before their discharge.
This means that any shares purchased before discharge will vest in the trustee, even if they are purchased with income earned after the date of bankruptcy and there are no outstanding income contributions.
More information can be found in the assets section of this site.
I have been discharged and my trustee says I have unpaid income contributions. What do I need to do?
Your obligation to pay income contributions still exists after discharge and the trustee can take action to collect it.
You should discuss paying the full amount with your trustee.
How are termination payments and leave payments treated?
Lump sum termination payments and redundancy payments, including leave payouts, are income for contributions purposes. They form part of your assessed income in the year in which the payments are received.
I think I earn below the threshold but my trustee has asked me to return a statement of income, together with copies of my payslips. Do I have to respond?
Yes, you must respond to all requests that the trustee makes about your examinable affairs. If you do not, the trustee may lodge an objection to your discharge.
What happens if I pay my contributions based on a projected assessment and I overpay my actual liability?
Overpayments that result from a reassessment (that is, when your actual income at the end of the year is found to differ from your projected income that was used to calculate your liability at the start of the year) cannot be refunded.
If you have further contributions liabilities, the overpayment will be credited to these. If though the overpayment arose in the final year of your bankruptcy, you will not have it refunded to you.
What if my circumstances change?
You must advise your trustee immediately if your income or number of dependants changes, or you think these details will change in the next 12 months. If you fail to do so, your assessment may be incorrect and you may pay too much or not enough.
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