As bankruptcy is intended to be an administrative process (rather than punitive process) for dealing with people who cannot pay their debts, bankrupts are allowed to retain some assets during and after their bankruptcy.
The ones I am most commonly asked about are:
Yes, the general principle is that a bankrupt may keep their interest in a superannuation fund as long as:
The above applies both to public superannuation funds and self-managed superannuation funds.
There are additional matters to be considered with self-managed superannuation funds, such as a bankrupt’s inability to be a trustee or director of a corporate trustee, but that is a topic for another time. (If you or your client is in this situation though, you are welcome to contact me and I can send you some additional information.)
Bankrupts can keep life insurance payouts in respect of themselves and their spouse received on or after the date of bankruptcy.
Bankrupts can also keep insurance payments that are damages or compensation for personal injury or wrong done to the bankrupt, their spouse / de facto partner and family member from before or after the date of bankruptcy.
Bankrupts can also keep insurance payments that are damages or compensation in respect of the death of their spouse / de facto partner and family member from before or after the date of bankruptcy.
Bankrupts cannot keep life insurance payouts received before the date of bankruptcy.
Bankrupts also cannot keep insurance payments that are compensation payments that are not related to personal injury or wrong, whether these were received before or after the date of bankruptcy. An example of such a payment would be in relation to illness, where the illness is not the result of personal injury or wrong.
A bankrupt can generally keep cars / motor vehicles with equity up to a total of $7,700 (amount indexed annually).
If a vehicle is leased, the amount of equity is equal to the estimated value of the vehicle, less the amount owed to the financier.
In order to keep a leased vehicle, the bankrupt (or some party) must also maintain the payments to the financier.
A bankrupt can generally retain his or her household furniture and personal effects.
An exception to this is any items of significant value, such as antiques or works of art.
The full list of items excluded from being divisible among a bankrupt’s creditors is set out in Subsections 116(2) to (4) of the Bankruptcy Act 1966 and the Bankruptcy Regulations referred to within these subsections.
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