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Differences Between Insolvency and Bankruptcy

How Are Bankruptcies Paid For in Australia?

Many individuals and companies end up in crippling debt that creates financial problems for them, which ultimately leads to a bankruptcy declaration. Bankruptcy can relieve you from most of your debt and give you an opportunity to start fresh but it has a lasting impact.
While bankruptcy can help you out of your financial situation, it doesn’t come free. You might be wondering how your debts are paid after you declare bankruptcy. Does the government pay or do you have to pay? There isn’t any fee to file for bankruptcy and there isn’t any maximum or minimum income or debt amount you must have to be eligible to apply for bankruptcy. However, you do have to make payments for certain things during your bankruptcy.

Let’s have a closer look.

How Are Bankruptcies Paid For in Australia?

The individual filing for bankruptcy is the one who basically pays for the bankruptcy. If you are declaring bankruptcy, you will have to pay the court filing payment that also helps in partially funding the court system and other bankruptcy case aspects.
In some cases, the trustee might get your fee waived depending on your income. If approved, the bankruptcy court handles the payment and ensures you receive the necessary bankruptcy services to complete the case.
However, the fee waivers are rare and are only granted when it is proved the individual can’t afford to make the payment even when the bankruptcy has been declared and they don’t have to pay the debts.

How Are Debts Paid In Bankruptcy?

When you declare yourself bankrupt, your debts are not typically paid in full. A trustee is appointed to you who evaluates your financial situation and your assets to pay some of your debt by:

Selling your assets
Making compulsory payments

The compulsory payments are the amount you have to pay every month if you are earning over a specified amount.
Your trustee can claim and sell most of your assets and use the proceeds from the sale to repay your creditors. The assets might include lottery winnings, tools, bank balances, vehicles, and real estate.
You have to declare all your assets when you apply for bankruptcy. If you fail to disclose any information to your trustee, you will end up facing penalties. The balance you owe is eliminated once you have been discharged from bankruptcy.
However, there are certain debts that are not covered in the bankruptcy that you would still have to repay, including student loans, taxes, court-ordered child support and alimony.

Assets That Can And Can’t Be Claimed During Bankruptcy

The debts in bankruptcy in Australia are mostly paid by selling off your assets. Here are the assets you own that your trustee can claim and sell off to pay off your debts during the bankruptcy and the assets they can’t sell:
You get to keep the vehicle you mostly use for transportation up to a certain amount. When the value of your vehicle exceeds the specified amount then your trustee can claim it to pay your debts.

House and Other Properties

Any house or property you own can be claimed by your trustee and sold to repay your creditors.

Cash or Bank Balance

Your trustee can claim your cash and the amount you have in your bank at the date you are declared bankrupt. However, you will still have a sufficient amount to cover your basic living expenses.

Money Received During Bankruptcy

The money you receive throughout your bankruptcy is not included in your typical income. This might include compensation payments, money gifts, inheritance money, and superannuation. All these payments are protected and the trustee can’t claim them to repay your creditors.
However, there are certain types of payments that are not protected, including lottery winnings or cash prizes. If you receive these payments during your bankruptcy, they can be used to pay your debts.
If you buy a vehicle, house or other asset using the protected money then this asset would also be protected. However, there are some exceptions.
For instance, if you purchase the asset by using 100% protected money, it can’t be claimed. But if you use only 20% of the protected money and 80% of unprotected money then your trustee can claim the asset and refund the 20% protected money. Therefore, it is essential to consult a bankruptcy expert to help you make an informed decision.

Tools of Trade

The tools you utilize to earn a living can’t be claimed by the trustee if they are valued below a specified amount. You have to determine the current market value of the tools, instead of how much you paid for them, to estimate their value.
If the value is below the specified amount, they are protected and you can keep them.

Household Belongings

Most of your household belongings that are of reasonable value can’t be claimed, for instance, appliances and furniture.

Debts You Have To Pay In Bankruptcy

Most of the unsecured debts, such as utility bills and credit card bills, are included in the bankruptcy. You don’t have to make payments for these once you have declared bankruptcy up till the date you became bankrupt.
However, you still have to pay the secured debt during bankruptcy. This can include car loans and mortgages. If you can’t make the payments for your secured debts, you will have to surrender the secured items.

Can You Pay Some Debts During Bankruptcy?

Even after declaring bankruptcy, you are allowed to voluntarily make some payments to pay off your debts. You will still be protected from creditors taking any legal action against you for debt that is included in the bankruptcy.
Keep in mind that creditors have the right to decide not to provide further services to you while you pay off your debts.

While bankruptcy is a challenging experience, it is an opportunity to fix your financial situation. However, you would still be required to continue making payments for secured debts that you owe that is not included in the bankruptcy.
It is important to understand the bankruptcy process in Australia to ensure you are making the right decision to declare bankruptcy. Since your debt is paid off by selling your assets and compulsory payments, you need to understand the options you have by consulting an experienced bankruptcy professional.

Using the right professional bankruptcy assistance, you would be able to make an informed decision and come out of your financial problems. Get in touch with us for a free consultation



  • As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.

    For Ross, it’s important to see the people behind the financial problem –not just numbers.

    Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.

    The unit she & her husband live in is not owned by them, but subject to a 20-year lease.

    The money to be repaid by the management was due only at sale, when the client finally left the retirement village.

    Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.

    Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.

    The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.

    The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.

    The moneys paid represented about 75% of what would have been available to creditors if they waited two years.

    It is a win for the client and for the creditors.

  • I made an appointment with Andrew after finding him on google. I was nervous and apprehensive about what to expect but he made the process of bankruptcy extremely uncomplicated and stress free, allowing myself the opportunity to get the fresh start I was so desperate for. Thank you Andrew I could not recommend you enough.

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