Can I have and Use an ABN While Bankrupt?

Yes, if you already have an ABN you can continue using it during bankruptcy. The ATO may deactivate the ABN when they receive news of the person’s bankruptcy but they will normally reactivate it when asked. Also, a bankrupt person who does not have an ABN, can apply to the ATO for an ABN.

A person will only have one ABN. The ABN does not change due to bankruptcy.

What if I am bankrupt and want to have an ABN?

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Yes, you can continue to operate a business and use your ABN after becoming bankrupt.

An ABN is the identifier used by government agencies to assess business income taxes and GST payments. The fact that you are bankrupt does not affect your ability to register for an ABN nor does it stop you from using one once registered. Bankruptcy will however create additional reporting obligations such as informing your bankruptcy trustee of any changes in trading activities or business assets owned during the period of bankruptcy. It’s important that these requirements are met because penalties may apply if they are not followed correctly or at all. If unsure, seek professional advice from a qualified accountant who specialises in taxation matters and bankruptcy before registering for or continuing to use an ABN.

Can A Bankrupt Have An ABN

Yes. You can be self-employed while bankrupt. If you would like to commence operating a business for the first time while bankrupt, you can. You are not restricted from continuing to use your ABN or applying for and obtaining an ABN, while bankrupt. If you are declared bankrupt and would like to apply for an ABN, the Australian Tax Office (ATO) can help. You are not restricted from having an ABN if you are bankrupt. It is worth noting that the bankruptcy act does apply some restrictions if you operate a business while bankrupt. We recommend you get across these restrictions before you operate a business while bankrupt. However, if you have been discharged from bankruptcy then the restrictions imposed by the bankruptcy act are no longer relevant. Your ABN does not change when you are discharged from bankruptcy.

QUICK TIP: If you already have an ABN the ATO will deactivate it when they are notified of your bankruptcy. All you have to do is contact the ATO and tell them that you would like to reactivate your ABN.

Considerations For Self Employment And Bankruptcy

In a bankruptcy, a self employed person (often referred to as a sole trader) can continue or begin operating a small business. There are, however, some fundamental matters and issues that a bankrupt person needs to be aware of when operating a business.

To give you some examples of the restrictions that may apply:

In the case of a business conducted under a name other than the Bankrupt’s, the Bankrupt must disclose their name and their status as an undischarged bankrupt to all business contacts, including suppliers, financiers, and customers.

If the self employed bankrupt person is seeking any form of credit (such as provision of goods or services on a trading account, issuing cheques, or entering into a hire-purchase agreement) and the value of that credit exceeds $6,852 (check for regularly adjusted CPI amount), they must disclose their undischarged bankruptcy status to the provider.

Tools of Trade (used to earn an income) and Motor Vehicles (used as a primary means of transport) may be retained up to agreed value limits, currently $4,200 and $9,100. (check for regularly adjusted CPI amount) 

In order to maintain an existing Australian Business Number (ABN) attached to the business, a self-employed bankrupt person must apply the Australian Taxation Office (ATO) for reactivation of the ABN. If an ABN has not previously been held, the bankrupt person will need to apply to the ATO for an ABN. Bankrupt persons can apply to the ATO for an ABN without any restrictions. 

The debts due to a bankrupt person’s sole trader business (from prior to bankruptcy) that have not yet been paid (debtors) may not be an asset of your Bankrupt Estate, remaining available for you to collect. If this is your situation, debtors you collect during bankruptcy will form part of your income when the trustee of your bankrupt estate assesses whether you will be required to pay income contributions to your bankrupt estate.

It is worth mentioning that your income, for the purpose of determining whether you will be required to pay income contributions during bankruptcy, is not the same as your income for income tax purposes.

Bankrupt persons need to be mindful that deductions permissible for income tax purposes may not qualify as a deduction when determining income for income contribution assessment in bankruptcy. For instance, capital-related outlays (such as depreciation) can’t be offset against a bankrupt person’s income. As a result, a sole trader’s calculation of income to determine whether income contribution payments are required during bankruptcy isn’t synonymous with the bankrupt person’s income under tax rules for income tax purposes.

If a bankrupt person operates a business, sometimes referred to as sole trader bankruptcy ,that person is liable for all obligations incurred by the business. These debts are not covered by the bankruptcy. Bankruptcy only provides protection for liabilities as at the date of bankruptcy. Liabilities incurred during bankruptcy are the responsibility of the individual. It is possible for a creditor to pursue a sole trader bankrupt for recovery of an unpaid business debt incurred during bankruptcy. If the debt is not satisfied, a sole trader bankrupt may be declared “bankrupt” again.

In certain industry bodies and professional associations, members or licensees who become bankrupt may be subject to restrictions, conditions, and/or covenants. There are also different laws governing eligibility for certain trades and professions that are administered by the state and federal governments. We recommend that this be checked out before deciding that bankruptcy is the best solution for resolution of your excessive debt. 

Many businesses suffer legitimate financial distress and losses, leading to eventual failure. It is a fact of life that not all businesses succeed. Because of their unlimited liability for business debts, Sole Traders are likely to declare personal bankruptcy. As a rehabilitative process, bankruptcy can be used to educate debtors about making better and more informed business decisions, as well as free them from existing debt’s shackles.

What’s A Sole Trader ?

An unincorporated business structure known as a Sole Trader, Sole Proprietor or Sole Proprietorship is a self employed person operating a business to earn an income. A sole trader business is owned and run by a single individual.

Questions About Self Employment And Bankruptcy?

There are some restrictions but yes you can be self employed, operating as a sole trader while bankrupt. We are here to help answer any questions you may have about being a sole trader while bankrupt. If you have any questions please give us a call on 1300 794 492 or email hello@understandingbankruptcy.com.au

Further Reading: We recommend our FAQ article ‘Can I run my own business while bankrupt?‘.

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