What You Keep and Lose in Bankruptcy in Australia

Section 116(2) of the Bankruptcy Act 1966 (Cth) protects a defined list of property from bankruptcy, including household items, a vehicle up to $9,950, tools of trade up to $4,600, superannuation and personal injury compensation, while almost everything else the bankrupt owns or later acquires vests in the trustee for the benefit of creditors.

This page covers property, income and the debts that survive; for how bankruptcy starts and ends see how bankruptcy works, for the public record, credit report and travel and director consequences see the consequences of bankruptcy, and start at the bankruptcy hub for an overview of the whole topic.

What stays out of the estate: section 116(2)

Bankruptcy in Australia works on a default of near total vesting. Under section 116(1) of the Bankruptcy Act 1966, almost everything the bankrupt owns when they become bankrupt, and almost everything they acquire before discharge, vests in the trustee and becomes available to pay creditors. Section 116(2) then lists specific carve outs that never vest in the first place.

Property held by the bankrupt on trust for someone else is excluded, since it was never really the bankrupt's own asset. Household property of a kind set by regulation, and personal property with genuine sentimental value, can also be excluded. A resolution passed by creditors can affect which specific household items are excluded; for sentimental-value items specifically, that resolution must be a special resolution. Tools of trade used to earn income by physical exertion are protected up to a limit AFSA currently states as $4,600, and a vehicle used mainly for transport is protected up to a limit AFSA currently states as $9,950; either figure can be exceeded with creditor or court agreement. These two limits sit in the Bankruptcy Regulations 2021 rather than the Act itself, so the dollar figures here reflect AFSA's published guidance rather than the regulation text directly.

Life and endowment insurance policies, and the bankrupt's interest in a regulated superannuation fund, are also protected. That protection is not absolute: if super contributions were made specifically to put money beyond the reach of creditors, the trustee can claw them back under the Act's anti-avoidance provisions. Finally, any right to damages or compensation for a personal injury to the bankrupt, or to a spouse, de facto partner or family member (including for a death), is excluded, along with any damages actually paid out.

What vests in the trustee and can be sold

Everything else generally vests and can be sold to repay creditors. That includes equity in a house, cash, shares, and most property acquired between the start of the bankruptcy and discharge, sometimes called after-acquired property. A bankrupt does not get to keep the family home simply because they live in it. Where there is equity in the property once any mortgage is accounted for, the trustee can sell it, though the trustee and any co-owner or mortgagee typically need to work through the practical mechanics of a sale.

Inheritances received during bankruptcy

An inheritance received while someone is bankrupt is treated the same way as any other after-acquired property under section 116(1): it generally vests in the trustee, regardless of the deceased's wishes or their relationship to the bankrupt. This surprises many people, since an inheritance can feel personal in a way that other property does not. For how a deceased estate is administered and distributed in the first place, see wills and probate in Australia.

Paying the trustee out of what you earn: income contributions

Bankruptcy can also require ongoing payments out of income earned during the bankruptcy, separate from any property that vests. Under section 139P of the Bankruptcy Act, a bankrupt becomes liable to pay a contribution once the trustee assesses that their likely income for a contribution assessment period will exceed the Actual Income Threshold Amount that applies to their number of dependants; section 139Q allows that assessment to be revised later. Section 139S sets the formula directly: the contribution equals the assessed income minus the Actual Income Threshold Amount, divided by two, in other words 50 percent of whatever sits above the threshold.

The threshold itself moves with the number of dependants a bankrupt supports, on the basis that a family of four needs more of its income to live on than someone with no dependants. AFSA calls the baseline figure, with no dependants, the Base Income Threshold Amount, and as the number of dependants rises, the Actual Income Threshold Amount rises with it, up to a cap for more than four dependants. A dependant only counts toward this if their own income stays under a separate ceiling AFSA also publishes.

The current thresholds, and how often each one changes

AFSA publishes the current dollar figures behind these rules on its indexed amounts page, and updates them on different schedules depending on the underlying provision. Some figures move twice a year, on 20 March and 20 September; others move once, at the start of each financial year. The table below carries each row's own update schedule rather than implying everything changes on the same date. These are the amounts AFSA's page stated as current when this article was last verified; AFSA republishes updated figures on its own schedule, so check its page directly for the amount in effect when you need it.

Debts bankruptcy does not wipe out

Bankruptcy does not clear every debt, and the Bankruptcy Act draws a real distinction between two different reasons a debt can survive it.

Some debts are simply never provable in the bankruptcy in the first place, under section 82 of the Act, which means they never entered the pool of claims the trustee deals with at all. Court-imposed fines and penalties fall into this category under section 82(3). So do HECS and HELP debts, along with VET Student Loans, student start-up loans and Australian Apprenticeship Support Loan debts, under section 82(3AB).

Other debts do get proved in the bankruptcy, but are specifically carved out of the release that discharge provides, under section 153(2). These include a debt on a recognizance or bail bond, a debt incurred through fraud or a fraudulent breach of trust, and any liability under a maintenance agreement or maintenance order, which is the mechanism that keeps child support and spousal maintenance obligations alive through and after bankruptcy. For how child support itself works, see child support in Australia. A court can grant relief from a section 153(2) debt in limited circumstances under section 153(2A), but the default is that these obligations survive discharge.

The practical difference matters less to the person owing the money, who ends up still owing it either way, than to how the debt was always treated: a not-provable debt like a fine or a HECS debt was never part of what the bankruptcy could touch, while a not-released debt like fraud or child support was counted, proved, and then deliberately excluded from the fresh start bankruptcy otherwise provides.