What happens to a bankrupt’s income?
Contributions to trustee
Bankrupts who earn above a certain amount must make some payments (contributions) from their income to their trustee.
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The Bankruptcy Act defines income broadly (ss 139L, 139M, 139N). Examples include a pension paid from a superannuation fund and fringe benefits such as subsidised rent or use of a company car.
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The net income that a bankrupt can earn before being required to make contributions is called the ‘actual income threshold amount’ (Bankruptcy Act s 139K). The AITA for a bankrupt with no dependants as at September 2024 is $71 826 net per year.
The bankrupt’s AITA is made up of all income derived during the assessment period, less any income tax payable and less any amount due for child support, plus any income tax refunds and plus relevant percentage increases for dependants’ income.
If the bankrupt has one dependant, their income threshold is increased by approximately 18 per cent; by 27 per cent for two dependants, by 32 per cent for three, by 34 per cent for four and by 36 per cent for more than four dependants.
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Section 139K of the Bankruptcy Act defines a ‘dependant’ as a person who lives with the bankrupt, is wholly or partly dependent on the bankrupt and who does not earn more than the ‘prescribed amount’. The current prescribed amount is $4406 (as at September 2024).
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The bankrupt can apply in writing to the trustee to have their income contribution varied on the basis of hardship, for reasons such as ongoing medical expenses, the need to pay for child care in order to work or the expense of paying for private rental accommodation (Bankruptcy Act s 139T).
If the bankrupt is not happy with the trustee’s response, or if the trustee does not make a decision after 30 days, the bankrupt can:
request the Inspector-General (AFSA) to review the trustee’s decision, and apply to the Administrative Review Tribunal (ART) if not satisfied with the Inspector-General’s decision; or
apply directly to the ART for a review of the decision if the Inspector-General refuses a request to review the decision (Bankruptcy Act s 139ZF).
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After the date of bankruptcy, a bankrupt must give the trustee a statement of income (with supporting documents) at the end of each 12-month period. A trustee can file an objection to the bankrupt’s discharge from bankruptcy if the bankrupt fails to provide the statements of income.
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If a bankrupt fails to pay the whole of their income contribution or an instalment of their contribution at or before the time it becomes payable, the trustee may determine that the ‘supervised account regime’ applies to the bankrupt (Bankruptcy Act s 139ZIC).
The supervised account regime requires the bankrupt to open an account (the supervised account) where all of their income must be deposited when it is received.
In general, a bankrupt who is subject to the supervised account regime must not make withdrawals from the supervised account without the trustee’s consent (s 139ZIG). This means that a bankrupt must reach an agreement with the trustee about the amount that may be withdrawn from the supervised account for living expenses.
What happens to a bankrupt’s income?
Chapter: 5.3: Understanding bankruptcy
Contributor: Paul Latimer, Adjunct Professor, Swinburne Law School; Volunteer lawyer, Fitzroy Legal Service
Current as of: 1 September 2024
Law Handbook Page: 326
Next Section: The effect of bankruptcy on debts
