BANKRUPTCY FAQs | Common questions on employment and income

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By Samuel Lam & Liyan Tay

Liyan Tay Insolvency & Reconstruction

When contemplating bankruptcy many debtors will no doubt have questions regarding the impact of bankruptcy on their work, business and income.  In this article we will shed a light on some commonly asked questions.

Can I work whilst bankrupt?

Yes you can.  The Bankruptcy Act 1966 (“the Act”) does not impose any restrictions on employment in any trades or professions.

However, some associations and governing bodies may impose restrictions on a bankrupt member.  In certain professions such as lawyers, accountants, barristers, tax agents and builders, the corresponding professional bodies have membership eligibility implications.

Although bankruptcy could have an effect on memberships or licences this does not mean you cannot work in those professions whilst bankrupt.  The professional body or industry may impose certain restrictions or conditions on an undischarged bankrupt.  The type of restrictions or conditions will vary depending on the state you are working and residing in during your bankruptcy.  It would be prudent to make enquiries with your professional association to determine how your license or membership could be impacted.

There are also some positions in which a bankrupt cannot hold during their bankruptcy.  Some examples are company director, trustee of a super fund, Councillor, Senator and Member of Parliament.

Can I be self-employed or a sole trader whilst a bankrupt?

Yes you can be self-employed and you can also be a sole trader whilst bankrupt.  However, there are a few important guidelines you must be aware of whilst trading.

Firstly, you must disclose your bankruptcy status to any person (e.g. customers and suppliers) if you are obtaining credit of more than $5,812 (indexed).  This includes ordering goods, issuing a cheque or accepting a customer order.

Secondly, you must operate the business under your own name, for example, Bill Smith Electrician.  Alternatively, if you intend on trading under a business name other than your own, such as Mr Sparky Electrician, you must inform every single person you deal with that you are an undischarged bankrupt.

If you do not comply with either of the above two rules you will be committing an offence under the Act.

What happens to my income whilst I’m an undischarged bankrupt?

There is no limit on the income amount you can earn as a bankrupt.  However, if your after-tax income exceeds a certain threshold (indexed), you will need to make a contributions to the Trustee of your bankrupt estate.

Compulsory income payments are calculated as 50% of the amount you earn above the applicable income threshold.  The payments you will have to make will vary according to the amount of income you earn and the number of dependants you have.  Below is a table of the current income threshold amount with dependants (note net of tax):

No. of dependantsIncome Threshold
0$58,331.00
1$68,830.58
2$74,080.37
3$76,996.92
4$78,163.54
Over 4$79,330.16

Why do I have to make income contributions to my Trustee?

The purpose of the income contribution regime is to require bankrupts who are able to afford to contribute towards their estate.  The income contribution regime is part of the mutual obligation of the protection of bankruptcy.  The Act provides protection to a debtor who has fallen on hard times, stops creditors pursing him and allows him to move forward without the burden of his liabilities.  As part of the mutual obligation once a debtor gets back on his feet and starts earning a reasonable level of income then there is the obligation to make contributions for the benefit of creditors of his estate.  The contributions are applied to the cost of administering the bankrupt estate and a dividend to creditors.

Want to know more?

If you have any further questions about bankruptcy please contact Liyan Tay, our Insolvency & Reconstruction Associate Director, for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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