Don't Fear Bankruptcy: What You Actually Keep

Don't Fear Bankruptcy: What You Actually Keep

The fear most people carry into a bankruptcy conversation is simple: "I'll lose everything." It's the single most common thing I hear, and it's the myth that keeps people frozen for years while their situation gets worse.

Here's the truth after 36 years at this. Bankruptcy has rules, and the rules are workable. People keep their income, a car, their super and their household goods, and most are discharged in three years. Let me walk you through what's actually protected — because once you see it laid out, the picture is far less frightening than the one in your head.

Household goods and tools of trade

The basics of your life aren't on the table. Bankruptcy law protects most household goods, so the trustee isn't coming for your furniture, your fridge or the family's day-to-day possessions.

Just as importantly, there's a statutory exemption for tools of trade — the equipment you actually use to earn a living. The system isn't designed to strip you of the means to get back on your feet. That would defeat the entire point, which is a reset, not a punishment.

A vehicle up to the equity limit

You can keep a car — this is where people get the most surprised. What matters is equity, not the sticker price.

Equity is the market value of the vehicle minus what's still owing on the loan. So a $40,000 car with $33,000 owing on it has only $7,000 of equity. There's an indexed cap on how much vehicle equity you can hold — around $9,400 at the time of writing, but it moves each financial year, so confirm the current figure at afsa.gov.au.

A few practical points:

• The vehicle must be used mainly as transport — a car or a motorbike.
• Multiple vehicles share the one cap; 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.
• If the car is financed and you keep up the repayments, the lender will generally let the arrangement continue.

Superannuation — the strongest protection in the system

If there's one thing people don't realise, it's this: your superannuation is the strongest asset protection in the whole system. Regular, consistent contributions built up over years are safe. Your super sits outside the bankrupt estate.

The one trap to avoid: a big last-minute dump into super the month before filing doesn't work — that comes straight back out. It's the years of steady, ordinary contributions that are protected, exactly as they should be. That's not a loophole; it's how the law is meant to operate.

Your everyday bank account and your future income

There's no law against a bankrupt having a bank account, and you can — and should — keep a normal everyday account running.

Here's how it works. Whatever is sitting in your account on the day of bankruptcy goes to the trustee, and the bank will usually freeze it once notified. But the income you earn after that date is yours to keep, subject only to the income contribution rules if you go over the threshold. Your future earnings power isn't taken away — you keep working, you keep getting paid.

Two things worth doing before you file:

• 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 to an institution you owe nothing to.
• Separate joint accounts early. Banks often freeze the whole of a joint account, which locks the other holder out of their own money until it's sorted. Get a partner's wages flowing into a sole account in their name well before the bankruptcy date.

The family home — when there's no real equity

The home is the frightening one, so let me be straight about it. A trustee is asking one question: is there enough equity above the mortgage to pay creditors after the costs of selling and the trustee's fee?

If there's no real equity above the mortgage, the home is often left alone — there's simply nothing in it for creditors. Where there is equity, there are legitimate strategies to protect a home, but they have to be put in place early, while you're still solvent, with proper advice. They aren't something you can do in the last fortnight. That's exactly why this conversation is worth having well before any decision is made.

Your career, for most jobs

While you're bankrupt you can't be a director of a company. But most jobs are completely unaffected. Some regulated professions carry restrictions, and it's worth checking yours — but the idea that bankruptcy ends your working life is simply wrong. Plenty of people go through it and rebuild their careers and businesses on the other side.

What this looks like in practice

Take an ordinary wage earner with a family. Their household goods are protected. They keep the car, because the equity sits under the cap. Their super — years of steady contributions — stays untouched. Their everyday account keeps running, and their wages after the bankruptcy date are theirs. On an ordinary income with a couple of kids, they may pay no income contribution at all. Three years later, they're discharged.

The people who come out worst aren't the ones who declared bankruptcy. They're the ones who hid assets, forgot to disclose an account, or got clever with structures at the last minute. Work with your trustee, keep everything above board, and the rules work the way they're meant to.

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.

Related service: Bankruptcy — see how we can help.