Bankruptcy is a legal financial status that can have positive and negative effects. It is strongly recommended that a debtor who is considering bankruptcy seek advice from an independent and qualified source. Bankruptcy can affect a person’s ability to get credit and employment opportunities.


Paul Latimer

Adjunct Professor, Swinburne Law School

What happens to a bankrupt’s income?

Last updated

1 June 2021

Contributions to trustee

Bankrupts who earn above a certain amount must make some payments (contributions) from their income to their trustee.

Definition of income

The Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’) (ss 139L, 139M, 139N) defines income broadly.

Examples include a pension paid from a super­annuation fund and fringe benefits such as subsidised rent or use of a company car.

Actual income threshold amounts

The net income that a bankrupt can earn before being required to make contributions is called the actual income threshold amount (AITA).

The AITA for a bankrupt with no dependants as at April 2021 was $59 559.50 net per year (indexed). The bankrupt’s AITA is made up of all income derived during the assessment period, less any income tax payable and less (with certain limits) any amount due for child support, plus any income tax refunds and plus relevant percentage increases for dependants’ income.

AFSA’s website keeps an updated table showing the current AITA amounts.

If the bankrupt has one dependant, their income threshold is increased by approximately 18 per cent; by 27 per cent for two dependants, by 32 per cent for three, by 34 per cent for four, and by 36 per cent for more than four dependants.

Definition of dependant

Section 139K of the Bankruptcy Act defines a ‘dependant’ as a person who lives with the bankrupt, is wholly or partly dependent on the bankrupt, and who does not earn more than the ‘prescribed amount’.

The current prescribed amount is $3763 (as at April 2021, indexed).

Applying to vary income contributions on hardship grounds

The bankrupt can apply in writing to the trustee to have their income contribution varied on the basis of hardship, for reasons such as ongoing medical expenses, the need to pay for child care in order to work, or the expense of paying for private rental accommodation (s 139T Bankruptcy Act).

If the bankrupt is not happy with the trustee’s response, or if the trustee does not make a decision after 30 days, the bankrupt can:

  • request the Inspector-General to review the trustee’s decision, and apply to the Administrative Appeals Tribunal (AAT) if not satisfied with the Inspector-General’s decision; or
  • apply directly to the AAT for a review of the decision if the Inspector-General refuses a request to review the decision (s 139ZF Bankruptcy Act).

Providing annual income statements to the trustee

After the date of bankruptcy, a bankrupt must give the trustee a statement of income (with supporting documents) at the end of each 12-month period.

A trustee can file an objection to the bankrupt’s discharge from bankruptcy if the bankrupt fails to provide the statements of income.

Failure to pay a contribution: The supervised account regime

If a bankrupt fails to pay the whole of their income contribution, or an instalment of their contribution at or before the time it becomes payable, the trustee may determine that the ‘supervised account regime’ applies to the bankrupt (s 139ZIC Bankruptcy Act).

The supervised account regime requires the bankrupt to open an account (the supervised account) into which all of their income must be deposited when it is received. If the bankrupt receives their income by cash (the trustee must consent to this form of income) or cheque, they must deposit it into the supervised account within five days of its receipt (s 139ZIF Bankruptcy Act).

Upon determining that the supervised account regime applies to a bankrupt, the trustee is required to provide the bankrupt with a written notice requiring the bankrupt to open a supervised account within the time specified in the notice (being a minimum of 10 working days after the notice is given to the bankrupt). The supervised account must comply with certain requirements set out in section 139ZIE of the Bankruptcy Act.

In general, a bankrupt who is subject to a supervised account regime must not make withdrawals from the supervised account without the trustee’s consent (s 139ZIG Bankruptcy Act). Accordingly, a bankrupt must reach an agreement with the trustee about the amount that may be withdrawn from the supervised account for living expenses.

A bankrupt may be liable to criminal penalties if they breach the requirements of the supervised account regime.

In accordance with the meaning of ‘reviewable decision’ in section 139ZIB of the Bankruptcy Act, certain decisions of the trustee in relation to the supervised account regime are reviewable by the Inspector-General and/or the AAT (ss 139ZIO, 139ZIT Bankruptcy Act). These include the decision to subject a bankrupt to the supervised account regime and the decision to withhold consent in relation to the bankrupt making a withdrawal from the supervised account.

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