The Bankruptcy Act 1966 provisions allow and encourage a person to continue earning an income throughout their bankruptcy period.
A bankrupt must make contributions toward their bankrupt estate if their income exceeds the statutory contribution threshold, which is prescribed by the Australian Financial Security Authority (AFSA) and is subject to the number of dependants a bankrupt has. Each year, the bankruptcy trustee assesses the bankrupt's income and gives a notice that outlines any contributions they must pay. Income under the Bankruptcy Act extends beyond the ordinary meaning of income under the Taxation Acts. Examples include loans received by the bankrupt, items under the fringe benefits tax provisions, annuities, and pensions. The amount payable is calculated as half of the excess above their after-tax income threshold, for example:
|After Tax Income||$100,000.00|
|Less Income Threshold (based on 1 dependant)||$68,282.94|
|Excess above after-tax Income||$31,717.06|
|Contribution Required (divide above by 2)||$15,858.53|
While it is critical that maximum recoveries are made in a bankrupt estate, bankruptcy is intended to offer debt relief, rather than punish people who are financially distressed. To facilitate further relief, the Bankruptcy Act allows a bankruptcy trustee to reduce a bankrupt's contribution if they are satisfied the contribution would result in financial hardship, by increasing the threshold amount.
Determining the higher income threshold is set out in section 139T of the Bankruptcy Act. Other than applying for hardship in writing, the key provisions are:
- The bankrupt or a dependant suffers from an illness or disability requiring ongoing medical attention and medications, which the bankrupt pays a substantial proportion of those costs.
- The bankrupt must pay for child-care costs to enable their continued employment.
- The bankrupt must pay "particularly high" rent for non-public housing when there are no alternatives available.
- The bankrupt incurs substantial expenses travelling to and from work.
- The loss of financial contribution to household costs from someone who lives with the bankrupt.
- Any other reason specified in the Bankruptcy Regulations (there are currently no other reasons specified in the regulations).
The bankruptcy trustee must decide based on satisfactory evidence the bankrupt provides. If a decision is not made within thirty days of an application, it is taken to have been refused. A bankrupt can apply to the Inspector General (the personal insolvency regulator) to review the decision.
Ultimately, a hardship application is assessed on the facts and available evidence, however for genuine cases the Bankruptcy Act assists a bankrupt in their financial rehabilitation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.