Income and employment

Becoming bankrupt doesn't normally prevent you from working, but it could have an impact on your income and employment. This page helps you to understand how it could affect you.   

One of your obligations when bankrupt is to keep your trustee informed of any changes in your income or employment. For example, if you:

  • change jobs
  • receive higher or lower income (including government assistance)
  • stop working.

How payments from the Coronavirus Economic Response Package affect people in bankruptcy

Economic support payments - are not claimable by your bankruptcy trustee as income or as an asset, regardless of whether you receive the payments before or after the date of bankruptcy.

COVID-19 supplement payments - are claimable by the trustee if you receive them before the date of bankruptcy and it remains in your bank account when you become bankrupt. During bankruptcy these payments are included in your after-tax income amount. If your after-tax income exceeds a set amount, you may have to make compulsory payments[?] 

More information about these types of payment are available at Services Australia.

Early access to superannuation -  Should you receive payments from your superannuation under the Coronavirus Economic Response Package, there is no change to the way this payment is treated in bankruptcy. See Is my superannuation affected? for details on what happens to your super during bankruptcy.

The Australian Taxation Office has more information about super payments on their website at Early access to your super.

For more information about how bankruptcy may affect your employment see Employment restrictions.

How much can I earn?

There is no limit to the amount of income that you can earn while you're bankrupt. There is also no limit to the amount you can save during your bankruptcy. However, if your after-tax income exceeds a set amount, you may have to make compulsory payments[?]. This amount changes with how many dependants you have.

Case study: Simon

Earning income during bankruptcy

Simon is a 45-year-old single father of two young children. He lives in Melbourne, Victoria.

Two years ago, Simon lost his teaching job and found himself unable to pay his debts. He went bankrupt six months later.

Recently, Simon was offered a position at a school. He accepted the job, and now earns $90,000 (after tax) a year.

Simon let his trustee know about his new job, as he knew that he needed to report all changes in employment and income.

The trustee told Simon that because he is now earning above the income threshold*, he needs to make income contributions.

From his fortnightly after-tax pay of about $3,590, Simon’s compulsory income contributions are around $280 per fortnight (based on the March 2021 income thresholds).

*The income thresholds change twice a year, and are different depending on how many dependants you have. You can find the latest thresholds at Indexed Amounts.

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.

    What are contributions?

    If your trustee determines you are earning over the income set amount, they'll ask you to pay income contributions[?]. Contributions is the word we often use for compulsory payments from your income.

    Your trustee can use these contributions to help repay your debts. Your trustee will notify you how and when you need to make payments. Compulsory income payments are:

    • 50% of the amount you earn above the income threshold (set amount)
    • paid by you to your trustee, and may go towards your creditors
    • calculated by your trustee to determine the amount you need to pay, if any.

    If you have any enquiries about these payments, contact your trustee.

    For more information see: Official Trustee Practice Statement 1 - Income contributions.

    Can I keep cash or money in a bank account?

    The trustee can take any cash or money you have in a bank account at the date of bankruptcy, but will leave you with enough for modest living expenses.

    During your bankruptcy, you can keep money you save in an ordinary savings account (e.g. not a term deposit) as long as your income doesn’t exceed a set amount and you don’t use it to purchase assets or property.

    Can I keep money in a term deposit account?

    No. Your trustee can claim any money you have in term deposits to help repay your debts. Your trustee can claim it regardless of whether it was set up before or during your bankruptcy. 

    See What happens to my money? for more information about how other types of assets, such as superannuation and inheritances, are treated in bankruptcy. 

    Government assistance

    Can I apply for government student loans?

    Yes. If you apply for credit over a set amount, you need to disclose that you are bankrupt. Contact Study Assist to confirm your eligibility.

    Will bankruptcy affect my family tax benefits?

    No, they don't form part of your income assessment for compulsory payments.

    Can I apply for Centrelink?

    Yes. Contact Centrelink directly to confirm your eligibility.

    Is my spouse's income affected?

    The trustee can only use your income to assess whether you need to make compulsory payments.

    Can I keep my job if I'm bankrupt?

    Bankruptcy doesn't stop you from working and normally we won't tell your employer you are bankrupt. However there are some restrictions to be aware of:

    • Some professional or licencing bodies impose restrictions in some trades or professions. Contact them directly to ask if restrictions apply.
    • There may be limitations to operating as a sole trader.
    • You can't manage a trust account e.g. as a solicitor or accountant.
    • You can’t be a director of a company or manage a company unless you have the permission of the court.
    • You may not be able to hold certain public positions (e.g. senator or member of parliament).

    Common professions that bankruptcy may affect are listed under employment restrictions.

    Can I still be director of a company?

    Not during bankruptcy. You are also unable to manage a company unless you have the permission of a court. For further company related enquiries, contact the Australian Securities Investment Commission (ASIC).

    Can I run my own business?

    Yes, however there may be restrictions. If you're a sole trader, it's your responsibility to make sure you fulfil your bankruptcy obligations.

    Your business name should contain your full name. This allows people to search for your name on the National Personal Insolvency Index (NPII)[?] if they choose.

    If your business name doesn't contain your full name, you must tell all people you do business with that you're bankrupt.

    For example: David Smith is currently bankrupt. He has a sole trader business as a plumber. If his business name is 'Dave’s Speedy Plumbing', he must inform his clients that he's bankrupt. If his business name is 'David Smith Plumbing', he wouldn't need to inform anyone because it contains his full name.

    Discuss this further with your trustee if you're unsure of your obligations.

    Direct queries regarding your Australian Business Number (ABN) to the Australian Taxation Office (ATO).

    If you have another type of company (ending in Pty Ltd) contact the Australian Securities Investment Commission (ASIC).

    Case study: Adrian

    Running a business during bankruptcy

    Adrian is a 36-year-old tradie from Queensland. He runs his own odd-jobs business, called Adrian’s Assistance. Adrian earns $40,000 a year.

    Adrian and his wife rent their apartment in Logan City. Adrian owns a van worth $6,000 which he uses for work. He also owns work tools which are worth around $3,000.

    Being self-employed, with a young family at home, Adrian struggles to find time to keep records for his business. He was surprised to discover he owed $100,000 of business-related debt to the Tax Office (ATO).

    Also, being a tradie, Adrian’s income can be inconsistent. He relies on credit cards to pay for essentials, and he owes the bank $20,000.

    Adrian spoke to his accountant, who referred him to a registered trustee to discuss bankruptcy.

    The registered trustee explained to Adrian some of the ways bankruptcy would affect him:

    • Adrian would be released from his unsecured debt (ATO* and credit card)
    • Adrian could keep his van because its value is below the vehicle threshold**
    • He could also keep his work tools because their value is below the threshold**
    • Adrian could continue to work as a sole trader. However, he would either need to tell people he is bankrupt, OR change his business name to include his full name
    • Adrian would not have to make compulsory income payments because he earns under the income threshold***

    Being bankrupt can affect your ability to work as a licensed contractor in certain trades or industries, such as construction. You should get your own legal advice to see if you are impacted. 

    * If Adrian was entitled to any tax refunds during bankruptcy, the ATO would keep them.
    **The threshold changes each year. You can find the latest threshold at Indexed Amounts
    ***The income thresholds change twice a year, and are different depending on how many dependants you have. You can find the latest thresholds at Indexed Amounts.

    *These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.