Wages, Super and Spending
Bankruptcy does not stop you earning … or spending, or saving money
You will be able to live and pay your household bills once you are bankrupt. Even without dependants, you will be able to keep at least $1,145.00 per week after tax (see figures below) from your pay packet, and after child support, if that’s applicable.
It’s also important to note that for the purposes of your bankruptcy, a dependant is someone who lives with you and is wholly or partly reliant on you for economic support. Dependants are not just children. A husband, wife, or partner who is wholly or partly reliant on you for economic support also fits the bill. A dependant can earn $ 3,763.00 per year before they cease to be eligible as a dependant.
Check out the figures below, if you have dependants:
One dependant: your net (after tax) income can be $70,280.21 per year, or an average of $1,351.00 per week take-home pay.
Two dependants: your net (after tax) income can be $75,640.57 per year, or an average of $1,455.00 net per week.
Three dependants: your net (after tax) income can be $78,618.54 per year, or an average of $1,512.00 net per week.
Four dependants: your net (after tax) income can be $79,809.73 per year, or an average of $1,535.00 net per week.
More dependants: your net (after tax) income can be $81,000.92 per year, or an average of $1,558.00 net per week.
These amounts are referred to as threshold amounts and are reviewed twice a year to ensure they are in line with the cost of living. These amounts are yours to do with as you wish.
Earn more than the threshold amount and you split it 50/50 with your bankrupt estate (bucket). So, if you’re capable of making a million dollars during the period of your bankruptcy, go for it! There are no restrictions on what you can earn and yes, while half of the amount over your threshold goes into the bankrupt estate or ‘bucket’, it’s only half. Don’t feel frustrated or cheated though, because this is a win situation. The other 50 percent is yours to keep. Use it for your regular expenses or, if you can, save some. Remember, it’s your future. This is the way the bankruptcy law helps you get back on your feet. The key is not to spend it on assets. Keep it in your bank account. If you buy an asset (eg: boat, caravan, or shares) during your bankruptcy your Trustee will take it and sell it, and put the proceeds in the bankrupt estate (bucket).
Here’s something else to think about. I know people who decided to switch to a lower-paying job so they earn just the threshold amount, to avoid paying the money to the bankrupt estate (bucket). To me, that’s crazy, because they are actually cheating themselves. With a higher paying job, yes, you pay 50 percent of that over threshold income to your bankrupt estate (bucket) – but you’re keeping the other 50 percent for yourself.
If you are likely to be paying 50 percent of your income which is above the threshold, please give me a call on 1300 764 197 or email email@example.com and I will talk to you about Bankruptcy Trustees. It’s important you have the right person, someone who is looking after you as well as your creditors because if you pay income contributions and your circumstances change, it is not refundable. I know that Nicholls & Co refund these amounts even though it is not refundable under the legislation.
Of course, for many people, going over the income threshold is rarely a consideration because they don’t earn that much. It’s also very important to remember the amounts above are per person – if a husband and wife each go bankrupt, they can each earn the net (after-tax) threshold amount per week with both able to claim their dependents before being required to pay income contributions.
Super is safe
If you are worried about bankruptcy and retirement, stop! Your super is safe, regardless of how much is in it. It’s protected by bankruptcy law unless you’ve done something shonky, such as loading it up with contributions just before you went bankrupt so the money isn’t available to pay your creditors. If you have put money into super in the ordinary course of time, in bankruptcy, it’s safe.
If you are retired and can access money from your super fund, I strongly advise you to leave it there until after you go bankrupt. Once you are bankrupt lump sum monies from your superannuation fund paid to you are protected and not available to your bankrupt estate (bucket). However, if you receive an income stream from your super fund then the above threshold amounts will apply. Bankruptcy and superannuation retirees are generally a pretty good fit. Lump-sum monies received from your super fund once you are bankrupt can be used to buy out the interest of the bankrupt estate in assets that you would like to keep for your retirement such as your home, boat, or caravan. Assets purchased with super fund monies are protected and not available to the bankrupt estate (bucket) as the protection extends from the money to the asset. I consider this a very important area for retirees to be across and if you have any questions please call 1300 764 197 or email firstname.lastname@example.org
And save, save, save…
Bankruptcy goes on your credit record for five years. It is very difficult to get a loan during that time, so my advice is to forget about loans and focus on getting the little things right in your life.
Do a budget and start saving to get your life back in balance. Take stock, have a look around your home. It is important to save some money in the bank to be able to replace household items and buy some new clothes. I recommend that you book a holiday for 12 months’ time and save a bit for it each pay. Having something to look forward to is really important.
In three years’ time, when you are discharged from bankruptcy, whatever monies you have managed to save which remain in your bank account will be yours.
You are able to save money from your income into your super fund during bankruptcy provided you meet the requirements of the superannuation laws. Even better, the statutory super amount that your employer pays into your super fund during bankruptcy is not available to your bankrupt estate (bucket).
Remember, if there are two incomes coming into the household and only one of you is bankrupt, the non-bankrupt partner can save their pay without regard.
Inheritances, Gifts and Lottery Wins etc
As mentioned earlier, if you leave your income in the same bank account that it was paid into on payday, it is not available to your bankrupt estate (bucket). However, if you receive an inheritance, money as a gift, or you have a TAB or lottery win or something similar, your Trustee will claim it for your bankrupt estate (bucket).
- In bankruptcy your wages have protection
- You can save during bankruptcy
- Monies you have accumulated over time in your super fund are protected
- Inheritances, gifts and lottery wins etc you receive whilst bankrupt are to be paid to your bankrupt estate (bucket)
The next article we recommend you read is Can I Own Anything which can be accessed here.
If you have a business, we recommend you also read our article Business and Bankruptcy which can be accessed here.
If you would like more information on Bankruptcy and Your Superannuation we recommend our comprehensive article on this subject which can be accessed here.