Life during bankruptcy

Once you have the protection of bankruptcy, life goes on as normal. You will have money from your pay to live on, rather than using it all on your loan repayments.

The trustee is not involved in your daily life. Their job is to take care of your bankrupt estate. Occasionally they may need some help from you, which could mean providing them with a document, or having a chat on the phone.

Your furniture and household effects are protected unless you have items of value such as works of art or antique furniture. You can save and replace furniture or other household items during the bankruptcy and keep tools of trade to an auction value of $3750. This usually covers a large number of tools because they do not fetch much at auction.

You can own a car to the auction value of $7700. If you have a car on finance, the lender will usually allow you to retain the car during your bankruptcy (and when it is completed), as long as the payments are kept up to date.

This is because cars depreciate rapidly. If the financier repossesses your car, it is likely to sell for less than the amount owing and bring a loss to account. This would be a provable debt in the bankruptcy.

If in doubt, we recommend you discuss the car with the lender before you lodge papers for bankruptcy because it is important to help you function in everyday life.

Where a car is subject to finance, you can only keep a car with a value of the loan payout plus $7700. For example, if the loan payout is $20,000, then the car’s auction value should be no more than $27,700 if it is to be kept. If your car exceeds the $7700 threshold equity amount and you need to keep it, talk to us and we will see what is possible.

We recommend you apply for a debit card so you still have the convenience of a credit card if you are travelling or buying goods on line etc. A debit card works the same as a credit card except you use your own money and won’t be subject to the costs that incur if the card debt is not paid on time.

During bankruptcy, you must disclose your status when applying for, or obtaining goods and services on credit or by cheque for more than $5602. Normally, once subject to bankruptcy, you won’t be able to get a credit card and we recommend you don’t because you will be charged a high rate of interest. That will reduce the amount of funds available for daily living.

Use bankruptcy to create the habit of saving, no matter how small the amount. Bankruptcy is not only about helping you resolve unpaid debut, but also redesigning the way you will live in the future. Put some time into making those plans.

As you ‘go through the door’ of gaining the protection of bankruptcy, I would allow you to have $2000 in your bank account if I am your trustee, but not all trustees will allow this.

Once bankrupt, the funds from your protected wages can be banked and used for living expenses, or to replace household goods, or even to go on holiday. Money saved from your wages must remain in your bank account, not invested in property, managed funds, shares etc.

Any money claimed as a tax refund for the year, or part-year before bankruptcy, goes to your bankrupt estate. For example, if you become bankrupt on 30 September one year and lodge a tax return for the financial year ending the following 30 June, and receive a refund of $1200, then $300 will go to the bankrupt estate. You get to keep $900.

You can retain all subsequent refunds during bankruptcy, but they will be viewed as some of your net income, and may take your earnings over what is called the threshold amount.

Another point to note is, if you owe money to the Tax Office, your refunds during bankruptcy will be held by the ATO against what you owe at the date of bankruptcy, but this only happens during the three years of the bankruptcy.

When it comes to housing, some people have been unable to rent a property once they were subject to bankruptcy while others have had no problems. It most likely comes down to each individual agent.

It is possible, depending on your circumstances, to save a house when you become bankrupt. Each case will be considered on its own merits.

It is in everyone’s best interest if the social consequences from the trauma of extreme financial problems can be minimised. The effects and consequences for other members of the family can be significant.

Kids can be distressed if they lose the security of their bedroom while the non-bankrupt spouse can be devastated to lose their home when they don’t have financial problems. We will always try to help your non-bankrupt spouse to save the house if we consider this to be a viable option.

Please note, during bankruptcy we do not take your passport, however, if you want to travel overseas you will need to get our permission. There is a form to be filled out in order for the travel to be authorised, but it is rare for a request to be declined.

Alan Nicholls’ No Obligation Help Desk

Nicholls & Co provide a free, no obligation ‘help desk’ for people considering bankruptcy – we discuss and explain bankruptcy and answer questions for people considering bankruptcy. The Nicholls & Co help desk can be accessed at Ph; 1300 060 122 or helpdesk@nichollsco.com.au . Alan Nicholls, Registered Trustee in Bankruptcy is also available to answer your questions to enable you to assess whether bankruptcy is right for you