HomeBlog › What are Income Contributions in a Bankruptcy?

What are Income Contributions in a Bankruptcy?

When a person goes bankrupt, their divisible assets all immediately vest in the Trustee for the benefit of the creditors. That includes the obvious things like a house, shares, or other investments. There are a number of exclusions from the divisible property like usual household furniture and personal effects (eg jewellery), as well as motor vehicles used as a primary means of transport, up to an indexed amount (currently circa $7,800). The Trustee’s job is to get in the divisible assets, so that recovered proceeds can be returned to the creditors.

But what about the income earned during the bankruptcy…?

Possibly a lesser known consequence of bankruptcy is that a Bankrupt is required to make contributions to his or her Bankrupt Estate if their income exceeds a statutory threshold, for the duration of the bankruptcy (generally 3 years). That threshold is set by AFSA and is indexed annually and increases with the number of dependents the Bankrupt has. Half of the income above the threshold is required to be contributed to the Estate, so the Act is designed to encourage the Bankrupt to work, and the more the Bankrupt earns, the more they keep, but also the more is paid to the Estate for the creditors.

The applicable thresholds and the contribution liability formula apply to all bankrupts and are designed to ensure a bankrupt has sufficient resources to live on after taking into account their number of dependents. There is only very minimal circumstances or exemptions which may apply that would allow any variation to these formulae on the grounds of hardship. Obviously there are plenty of rules and regulation around how all these things work and are calculated, including how income is determined, and what qualifies as a “dependent”, etc.

Feel free to contact us at RCIG to have a no obligation chat about how all of this may impact on your potential Bankruptcy.

The AFSA website now has a handy summary, and a simple Income Contributions Calculator on it’s website:

Ready to Make a Change?

 07 3270 8500