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ASSETS – WHAT HAPPENS TO MY ASSETS IF I GO BANKRUPT? Reproduced by express permission form the Commonwealth Government, Australian Financial Security Authority. June 2004 Edition What are assets? Assets or property are anything you own when you become bankrupt or anything you buy or receive before the end of your bankruptcy. Income you earn during bankruptcy is not included but will be taken into account in your income contributions assessment. More information is available in the pamphlet: Income Contributions Going bankrupt will affect your assets. Some assets are exempt, which means you may keep them. Some assets are non-exempt or divisible, which means your trustee may sell them for the benefit of your creditors. What assets may 1 keep? The Bankruptcy Act sets out a list of exempt or protected assets, for example:
- most ordinary household or personal items, such as clothes,furniture, kitchen appliances and equipment, a TV, video recorder, stereo,washing machine, and items mainly for the use of children or students in the house
There are circumstances where some of these things would be sold, such as antique furniture, and electrical equipment of significant value.
- tools used to earn an income, up to a limit of $2,900(indexed) - tools over this limit may be sold by your trustee
Indexed means the amount regularly changes in line with the Consumer Price index or the base pension rate
- vehicles (cars or motorbikes) used mainly for transport, up to a combined limit of $5,800 (indexed). The limit refers to your equity in the vehicles (the value of the car minus the sum owing under finance)
- superannuation and life assurance policies up to the pension Reasonable Benefit Limit (as worked out under the Income Tax Assessment Act 1936)
- compensation for a personal injury (eg from a car accident or workers compensation)
- assets bought with protected monies
Protected monies are monies that cannot be claimed by a trustee eg personal compensation money, certain government grants
- re-establishment grants to farmers, including grants under the Rural Adjustment Act 1992 or Farm Household Support Act 1992
- property protected under the Defence Service Homes Act 1918
- an asset held by you in trust for another person (eg a child’s bank account).
Awards of a sporting, cultural, military or academic nature made to you, such as medals or trophies but not cash or jewellery, and claimed as having sentimental value may be exempted by a vote of creditors.
If you are buying an exempt asset under finance, you will only be able to keep it if you continue to pay for it.
Warning:
There are penalties if you fail to:
- disclose assets on your Statement of Affairs
- disclose to your trustee in writing within 14 days any assets you acquire during bankruptcy.
What assets will my trustee deal with?
Your trustee will sell or distribute your non-exempt (divisible)assets and any assets that have a value over a specified limit.
Your assets include those you own when you become bankrupt, or any you acquire or receive before the end of your bankruptcy.
These assets may be in:
- Australia or overseas
- your possession or someone else’s.
Examples of divisible assets include:
- houses, apartments, land, farm and business premises(including leases)
- cars, trucks,vans, caravans, trailers, motorbikes, boats and aircraft
- shares and other investments (including shares held in your employer’s business)
- tax refunds for income earned before you became bankrupt
- money owed to you
- livestock and farming crops
- your right as a beneficiary in a deceased estate, even if the person dies during your bankruptcy
- antiques, collectables and jewellery
- business and business assets, including goodwill, stock,equipment, machinery, vehicles, fixtures and fittings and an interest in a partnership
- leaseholds, franchises, licences and patents
- a right to commence or continue legal proceedings/legal actions
- money with deposit taking organizations (eg banks, credit unions, licensed totalisator/betting agencies)
- lottery winnings and other competition prizes.
Warning:
You may be liable for Capital Gains Tax in some cases.
What about assets I own with another person?
If you have a share in a non-exempt asset, for example a house, your trustee can sell your share. If the co-owner is not also bankrupt, the trustee may agree to sell your share to them, but it would have to be for at least as much as the trustee could get from selling it on the open market.
If an agreement cannot be reached with the other owner, the trustee may apply to the Court for an order to sell the property.
What does my trustee do with the money obtained from my assets?
Your trustee’s aim is to pay your creditors and his or her own fees and expenses plus the government realisations charge.
Your trustee will sell an asset if there will be an expected surplus after selling costs and expenses and any debts owed to a secured creditor are taken out.
The balance (surplus) is kept by the trustee for the benefit of your other creditors.
Payments to creditors are called dividends.
Example:
House property $190,000
less secured creditors
council/shire rates 4,000
bank mortgage 145,000
less costs of sale
legal costs 1,000
advertising 1,000
agent's commission 6,000
Surplus $33,000
Trustee fees and expenses plus the government realisations charge will be paid out of the $33,000 and the balance distributed as dividends to creditors.
Can my creditors take my assets?
Secured creditors who hold a security over an asset may take and sell the asset if you fall behind in payments. Bankruptcy does not affect the rights of secured creditors.
Common examples of secured assets are:
- a house subject to a mortgage with a bank
- a motor vehicle subject to a bill of sale
- goods under hire purchase, chattel mortgage, lease or bill of sale with a finance company
- assets with creditors secured by government legislation over houses and land, such as council/shire rates and water rates.
If you are in doubt about whether one of your creditors is secured, you should first ask the creditor. If you are still doubtful, ask. a financial counsellor or your trustee.
A list of financial counsellors and other advisors is available from AFSA offices (see rear cover) or from AFSAs website www.afsa.gov.au.
- If you wish to keep an exempt asset which is secured, you will need to keep paying for it or the creditor will take it back.
- A secured creditor cannot take an asset back just because you are bankrupt.
- Your trustee can sell a non-exempt (divisible) asset if it is of value, even if you are paying it off (eg a house).
- In some cases creditors retain ownership of items you have bought until their debt has been paid in full (eg retention of title,consignment and commission).
More information is available in the pamphlet Debts and Creditors: What happens to them if go bankrupt?
More information on trustee fees is available in the pamphlet: AFSA Statutory Fees & Charges
What about assets I used to own?
Trustees will investigate assets you owned in the 5 years before bankruptcy.If they find that you have given away or sold assets for less than their true value, they may recover these assets.
Your trustee may also recover any assets that have been transferred for the purpose of defrauding your creditors (including assets transferred more than 5 years before bankruptcy).
What happens to my assets when I am discharged from bankruptcy?
Your trustee keeps any non-exempt assets which have not been sold before your discharge (end of bankruptcy). Your trustee may have been unable to sell your assets straight away; it may take some years.
In limited circumstances, your trustee has a time limit of 6 years after your discharge to deal with assets (other than cash). The 6 year limit only applies to:
- assets disclosed in your statement of affairs, and
- assets acquired by you during bankruptcy, where you disclosed them in writing to your trustee within 14 days of you becoming aware of them.
The 6 years do not begin until at least the date of your discharge from bankruptcy.
Your trustee is able to extend this 6 year time limit by giving you written notice.
If all your creditors and trustee's fees and expenses have been paid in full,any remaining assets will be returned to you.
Where to contact us
Telephone 1300 364 785
AFSA website www.afsa.gov.au
