Bankruptcy is always the option of last resort for many Australians and part of the reason for that is that it places lots of limitations on the debtor. If you are an undischarged bankrupt, for example, you may not be able to borrow beyond certain amounts of money or hold certain positions.
When you file for bankruptcy, there will be certain restrictions placed on your assets, income, lifestyle as well as job choices that you may hold. Due to these restrictions, bankruptcy can generally be quite disruptive for your lifestyle. Some of the limitations that you will face include the following:
The Limitations on Income
How much can a bankrupt earn? The income limitations mean that you will be unable to earn beyond a certain limit for the duration of the agreement. The set earnings threshold during the life of the bankruptcy is set by the Australian Financial Services Authority or the AFSA. Based on the number of dependants that you are supporting, this threshold will increase. All the income that is earned above this threshold will be divided amongst your creditors through the trustee that is handling your bankruptcy case.
When you are undergoing through your undischarged bankruptcy, you will also be required to make bankruptcy income contributions. If you earn above a certain threshold that has been set by AFSA, half of your after-tax earnings will go to your creditors. Currently, the Bankruptcy Income Threshold for someone who does not have dependents is $1,040.02 per week after tax. The threshold for someone that has a single dependent is set at $1,048.43 per week after tax, for someone with two dependants, the threshold is set at $1, 331.50 per week after tax; for someone with three dependants, the threshold is set at $1,383.93 per week after tax and for someone with four dependants, the threshold is set at $1, 404.89 per week after tax. If you have more than four dependents, you will have an income threshold of $1, 425.86 per week after tax.
As an undischarged bankrupt, there is also a limitation on a number of assets that you can own. You will be able to keep most of the household items that you have but there are some that can be claimed by the Trustee such as antiques, pieces of valuable jewellery, and even pieces of art. These can be auctioned off and the proceeds of the sale distributed amongst your creditors. If the value of your car, as well as the value of your tools of work, is below a certain threshold that has been set by AFSA, then you may keep them.
If you are an undischarged bankrupt, then you cannot own a home. If you have any properties or shares in certain properties, then these will be sold and the proceeds distributed amongst your creditors.
Limitations on Borrowing Money
You can apply for a loan during the period when you are an undischarged bankrupt although your success will depend on the individual lender. However, you can only borrow a maximum of $5, 398. Remember that if you fail to declare your bankrupt situation when applying for loans, you may also face very serious consequences from the lender, many of whom will view you as very high risk once you declare that information.
When you are bankrupt, you can only travel overseas with permission from a court of law.
When thinking of declaring bankruptcy, it is important that you clearly think about some of these restrictions that you are going to face during the process.