Bankruptcy Income Threshold

What is the Bankruptcy Income Threshold?

Bankruptcy aims to offer relief to Australian citizens in situations where they have no chance of repaying their debt. Formally, this is the state of being “insolvent”. Insolvency refers to a situation where a person’s income is lower than their expenses. The bankruptcy income threshold is the amount of money a person needs to earn in order for them to be considered solvent. This figure is determined by both the Australian Financial Security Authority (AFSA) and the court. Generally, it has been set at a level that allows an individual to pay their debt usually within three years or less without sacrificing any necessary living expenses such as rent or food. In addition, AFSA also considers other factors such as unemployment and illness when determining the bankruptcy income threshold. This takes into account any changes in circumstances that may make repaying debts difficult for individuals who are trying their best to meet repayments but can’t due to unavoidable circumstances beyond their control.

Bankruptcy Income Contributions

The Bankruptcy Act stipulates certain restrictions in order to ensure that, where necessary, creditors are able to receive some repayment. These restrictions are not made for punishment, simply to ensure that high-income earners are not trying to avoid repayments through bankruptcy. If the debtor can afford to make some contribution without major financial hardship, they should consider debt consolidation or a personal insolvency agreement prior to declaring bankruptcy.

How Long Do Bankruptcy Income Contributions Last?

Bankruptcy is broken down into two separate periods: the “undischarged bankruptcy” period that goes up to three years, and the “discharged bankruptcy” period that goes for four years. Throughout the “undischarged bankruptcy” period, restrictions will be imposed on the declarant under the Bankruptcy Act, including certain income contributions. Throughout the “discharged bankruptcy” period, the bankruptcy record appears on credit records but no restrictions will apply.

How are Bankruptcy Calculations Calculated?

Bankruptcy income contributions are an amount of income paid to creditors throughout the “undischarged bankruptcy” period. AFSA, a federal government agency, sets bankruptcy income thresholds. Above 50% of the income is paid to creditors. Bankruptcy income thresholds are updated quarterly based upon a calculation that is reminiscent of pension adjustments.

The bankruptcy income contribution is calculated based upon after-tax income. Non-taxable income, such as family tax benefit (FTB) and child support, is not included on the calculation. The bankruptcy income thresholds are a sliding scale that are calculated based on the declarant’s dependents. The Understanding Bankruptcy team can give you a clear idea of how much you stand to earn post-declaration.

The following are Income Threshold Amounts (After Tax) for bankruptcy declarants:

  • No Dependants $1,280.65/week after tax
  • One Dependant $1,511.83/week after tax
  • Two Dependants $1,626.88/week after tax
  • Three Dependants $1,690.71/week after tax
  • Four Dependants $1,716.37/week after tax
  • More Than Four Dependants $1,742.40/week after tax

Contact Understanding Bankruptcy for More Information About Income Threshold

If you would like to discuss your own personal income post-bankruptcy, please feel free to get in contact with the friendly and knowledgeable team at Understanding Bankruptcy. We understand that you are going through a tough time, and we are here to lend a compassionate ear as well as sound advice on your earnings after making a bankruptcy declaration.

Call us on 1300 794 261 or send us an enquiry message via our contact page. We will get back to you as soon as possible and with all the information you require regarding personal income and assets post-bankruptcy declaration.

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