The 9 Questions I'm Asked Most About Bankruptcy

The 9 Questions I'm Asked Most About Bankruptcy

I've been at this 36 years, and I went through my own business collapse in 1988 — so I've had to ask some of these questions myself. The same ones come up again and again at the kitchen table, usually in a low voice because people are scared of the answer. Here they are, without the jargon.

One rule sits over the top of everything: work with your trustee. Don't hide things, don't try to be clever with the system. When a trustee finds one thing that doesn't look right, they start pulling on the thread — and that never ends well. Regardless of what's technically legal, every decision should pass the smell test.

Can I be a signatory on a company bank account?

Yes. Bankruptcy on its own doesn't ban you from having signing authority. But it sits close to a line that matters — an undischarged bankrupt is automatically disqualified from managing a corporation. You can't be a director or secretary, or make the decisions that run the business. Breach that and it's a criminal offence.

Limited authority under someone else's direction, within set limits — say, as an employee — is generally fine. Being the sole signatory with no real oversight, deciding who gets paid and when, is dangerous: courts have treated control of the bank account as evidence you're managing the company. Dual signatories and clear written instructions from the directors keep you on safe ground.

Can I travel overseas?

Yes — but only with your trustee's written permission first. Travelling without it is a criminal offence, and it can stretch a three-year bankruptcy out to as long as eight.

Apply before you book anything. The trustee will want the reason, destination, dates, who's paying, and your return date. Permission is usually granted for genuine work, family or compassionate travel — holidays out of your own pocket get more scrutiny, and keeping your contribution payments current is almost always a condition. Trustees aren't trying to keep you prisoner. Ask first, travel after.

What value car can I own?

You can keep a vehicle with equity up to the indexed limit, which moves each financial year — check afsa.gov.au for the current figure. The key word is equity, not sticker price: market value minus what's owing on the loan. A $40,000 car with $33,000 still owing leaves only $7,000 of equity.

The vehicle has to be used mainly as transport — car or motorbike — and multiple vehicles share the one cap, so it's the combined equity that counts. Over the limit? You or a family member can usually pay the trustee the difference and keep the car. And if it's financed and you keep up the repayments, the lender will generally let the arrangement continue.

How much can I earn, and when does the trustee take extra income?

There's no cap on what you can earn. The threshold only decides when you start sharing. Above it, you pay the trustee half of every after-tax dollar over the line — you keep everything up to the threshold, plus half the rest. The threshold is indexed twice a year and lifts if you have dependants (afsa.gov.au has the current numbers). A wage earner on an ordinary income with a family often pays nothing at all.

And it's not taken from each pay packet — bankruptcy runs in 12-month assessment periods, worked out at the start and reconciled at the end. The full income maths — the formula, the assessment periods, and the windfall trap that catches people out — is its own article, so I'll leave the detail there. The short version: tell the trustee when your income changes, and keep the payments current.

What happens to my bank accounts — personal and joint?

For a sole account, whatever's in it on the day of bankruptcy goes to the trustee, and the bank usually freezes it once notified. Income you earn after that date is yours (subject to contributions) — there's no law against a bankrupt running a normal everyday account.

Joint accounts are messier. Only your share goes to the trustee — presumed 50/50 unless proven otherwise — but banks tend to freeze the whole account, so the other holder loses access to their own money until it's sorted. Three things to do before filing:

• Separate accounts early. Your partner's wages should be landing in an account in their sole name well before the bankruptcy date.
• Bank where you don't owe. A bank can take money from your account to cover its own credit card or loan. Move your everyday banking somewhere you owe nothing.
• Re-point direct debits running through a joint account — a freeze will bounce them.

And disclose every account, joint included, in your Statement of Affairs. "I forgot the joint account" is a classic way to extend a bankruptcy.

Divorce — do I negotiate with my spouse, or the trustee?

Both, on different pieces. Your property went to the trustee the day bankruptcy started, so the trustee stands in your shoes for the property settlement and is joined to the Family Court proceedings. The fight over the house and the assets becomes trustee versus spouse.

You still handle parenting arrangements (untouched by bankruptcy), spousal and child maintenance, your super, exempt assets, and anything acquired after discharge. What matters most is timing. A genuine, properly documented settlement finalised before bankruptcy has real protection. A rushed deal on the eve of bankruptcy that hands everything to the spouse gets attacked — and the trustee usually wins those. If both events are on the horizon, the family lawyer and the insolvency side need to be talking before anything is signed.

Can the trustee take over our family trust?

No. The appointor power is personal — it isn't "property", so it doesn't pass to your bankruptcy trustee, and they can't use it to sack the trust's trustee and install their own. A genuine family trust's assets stay outside the estate.

But check three things before you relax. The deed may remove you anyway — most well-drafted deeds automatically disqualify a bankrupt appointor and name a successor, so read it. The trustee role is different: a bankrupt can't be a director of the corporate trustee, so control has to land elsewhere regardless. And the money history is the real battleground — unpaid distributions and loans you made to the trust go to your bankruptcy trustee, assets you moved in recently can be clawed back, and anything the trust pays you during bankruptcy counts as income. The structure usually survives; it's the money moving between you and the trust where the fight happens.

What's the best trust to protect family assets?

Honestly, it's less about the type of trust and more about when it was set up and who holds which roles. A perfectly drafted trust created six months before trouble is nearly worthless. An ordinary family trust set up ten years ago, done properly, is close to bulletproof.

Done right, a discretionary family trust buys its assets from day one (not transferred in later), keeps the at-risk person as a mere beneficiary — not trustee, not appointor — and puts the appointor role with the low-risk spouse. Superannuation is the strongest protection in the system when built through regular contributions over years; a big dump into super the month before filing comes straight back out. Testamentary trusts in your parents' wills are almost always overlooked and cost nothing now.

What doesn't work is anything done after the writing's on the wall — transfers to defeat creditors can be unwound with no time limit. This is structuring work for a lawyer to document. The timing call, and pulling the right people together, is where we come in.

Talk it through — before the next letter arrives

If any of this is sitting on your desk right now, the next move is a confidential strategy session. Phone or video, whichever suits you — we'll look at your whole position, tell you straight where you stand, and map the options while you still have them.

Book at resolvency.com.au or call 0457 099 099.

I'm not a liquidator or trustee — I work for you, not the creditors. In 36 years I've never once heard someone say they acted too early.

General information only — not financial, legal or tax advice. Everyone's position is different, so get advice specific to yours before you act.

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