Bankruptcy

Income

The Bankruptcy Act dictates that if you earn above a certain amount, then you can afford to contribute some of your earnings towards your bankrupt estate.

These amounts are indexed, which means that they increase every year. Your income over this threshold limit can be varied by factors such as dependants, child support payments, fringe benefits, income tax payable, and salary packaging.

When people first speak to us, many seem to think that they can only earn up to a certain amount of money before everything else is “taken” in bankruptcy. This is simply NOT true.

Here’s what really happens: if you earn over a certain amount (we call it the Base Income Threshold or Actual Income Threshold), then you might have to pay half of your net (after tax) income over this amount. Half – not all.

The income threshold that applies to you will come down to the number of dependants who you support.

Who is a dependant?

A person is a dependant if they live with you for most of the time and earn less than a set limit each year (these limits are updated quarterly).

Their assessed earnings are not just based on taxable income, but can also include payments from child support, Centrelink and any pensions that they might receive.

The table below outlines the amounts that are applicable for different numbers of dependants. We sometimes call these amounts “thresholds”.

Threshold Guide  Threshold Amount
Actual Income Threshold – If you have no dependants $57,239.00
Actual Income Threshold with 1 dependant  $67,542.02
Actual Income Threshold with 2 dependants  $72,693.53
Actual Income Threshold with 3 dependants  $75,555.48
Actual Income Threshold with 4 dependants  $76,700.26
Actual Income Threshold with more than 4 dependants $77,845.04

How is the payment calculated?

The basic math is as follows: (Assessable income – Actual Income Threshold Amount) ÷ 2

Remember, you’ll only pay half of what you earn above the threshold, so while earning more means that you might have to pay more in bankruptcy, it also means that you’ll have more money in your pocket, too.

Calculating your payment in bankruptcy

Let’s look at a basic example.

If Daniel earns $90,000 gross taxable per year and he has no dependants, this is how his income might be assessed in bankruptcy:

Daniel’s Gross Income: $90,000.00
Less Tax Payable: $22,627.00
= Assessable Income: $67,373.00
Less the threshold for no dependants $57,239.00
= Excess above the threshold: $10,104.00
Amount payable (Excess ÷ 2): $5,052.00

So Daniel would have to pay around $5,052.00 per year, which breaks down into around $194.31 per fortnight ($5,052.00 ÷ 26).

What is my “assessable income” and how is it determined in bankruptcy?

Generally speaking, your assessable income will include your wages after tax, less any child support that you have to pay, plus any benefits.

The definition of income in the Bankruptcy Act is quite broad, so your assessable income will also include fringe benefits, such as a company car, rent paid by your employer and it will also include superannuation that you draw as a pension.

Don’t worry – you don’t have to figure out what your assessable income is or what your payment might be. That’s one of the trustee’s many jobs after you become bankrupt.

Will the trustee just automatically garnish my wages?

The concept that your wages are automatically garnished from your pay directly through your employer is a myth.

In most cases, you will receive a letter outlining what you need to pay, when you need to pay it and where you need to pay it to (ie the bank account details for making payments).

We recommend that you set up a recurring payment from your internet banking in order to ensure that you keep to your payment schedule and don’t fall into arrears.

Provided that you make your repayments independently, there is no reason for the trustee to contact your employer or garnishee your wages. While it is true that a trustee can garnishee your wages, this is more often than not the very last resort when it comes to collecting your income contribution payments.

Basically, this is what might happen if you don’t make the payments yourself.

Watch our video on income and bankruptcy to learn more

Want to get a better idea of what you might have to pay in bankruptcy? 

We’re happy to give you a free income review. If you think that you might earn enough to make a payment in bankruptcy, just call one of our experts on 1300 369 168 or make an online enquiry to discuss it further. Reviewing your income more thoroughly will let us provide you with payment figures tailored to your specific situation.

 

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