What happens to my money?

More information you should know about different types of payments and whether the trustee can claim them in bankruptcy.

Can I keep my tax refund?

It depends on your circumstances. You must inform your trustee[?] when you receive your tax refund. You also need to provide a copy of your Australian Taxation Office (ATO) Notice of Assessment.

Your trustee calculates the following and notifies you of the outcome:

  • Refunds for income you earn before you enter bankruptcy is an asset your trustee can claim.
  • Refunds for income you earn after you enter bankruptcy form part of your assessable income for compulsory payments.

You still need to lodge your tax returns as your obligations to the ATO remain during bankruptcy

Can the ATO keep my refunds during bankruptcy?

Yes, but only if you owe a debt to them or another Commonwealth agency e.g. Child Support or Family Assistance. They will use the tax refund to go towards what you owe.

The ATO can withhold your tax refunds even if you list these debts in your bankruptcy. For further queries contact the Australian Taxation Office.

Is my superannuation affected?

It depends, you must inform your trustee if you receive any super before and/or after your bankruptcy begins.

Super payments you receive before bankruptcy:

  • Are claimable by your trustee.
  • Your trustee can claim assets you purchase with those funds e.g. a house

Super payments you receive during or after bankruptcy:

  • Are not claimable by your trustee if it is a lump sum payment.
  • Your trustee cannot claim assets you purchase with those funds e.g. car

An exception is where your super isn’t in a regulated fund, approved deposit fund or an exempt public sector scheme. Your trustee can claim super not held in these types of funds. Refer to your super fund provider if you are unsure which type of fund your super is in.

Super you receive as income:
During bankruptcy, super you receive as an income stream (e.g. a pension) forms part of your assessable income. If your income is over a set amount, you may need to make compulsory payments[?].

Self-managed super funds
Someone who is bankrupt can’t be a trustee of a self-managed super fund.  If you have a self-managed fund you must advise your trustee. You must cease acting in this position and notify the ATO within 28 days. See the ATO website for more information on removing yourself as a trustee.

For more information see the Official Receiver practice statement – Exercise of the Official Receiver’s powers to assist trustees.

How are compensation payments treated?

Whether you can keep compensation you receive, depends on the type of payment. When you receive a compensation payment, you must inform your trustee. Your trustee can request supporting documents to determine whether they will claim it. If they claim it, they can use it to help repay your debts.

Note: This information is a guide only, as the legal treatment of these payments can be complex. You may wish to seek your own legal advice.

Your trustee is not able to claim:

  • compensation for personal injury or wrong done to you or your family. For example, payments for an injury due to a car accident.
  • life insurance or endowment payments that you/your partner receive after you became bankrupt.
  • assets you buy wholly or substantially with these payments.

We also refer to these types of payments as protected money[?]

Your trustee is able to claim:

  • life insurance or endowment payments that you/your partner receive before you became bankrupt.
  • compensation payments you receive that do not relate to personal injury or wrong done to you. For example, payments for illness that is not a result of a personal injury.

If you are unsure what the compensation was for, we encourage you to get your own legal advice.

What happens if I receive an inheritance?

If you receive an inheritance, your trustee is able to claim this to help repay your debts. This applies if the right to an inheritance arises before or during your bankruptcy.

You, or the executor of the will must notify your trustee of the inheritance within 14 days of becoming aware of the entitlement. If you receive the inheritance before your bankruptcy begins, you will need to put this information in your application. When you enter bankruptcy, your trustee can request supporting documents.

Advise of inheritance

Case study: Renee

Getting an inheritance while bankrupt

Renee is a 52-year-old mother and grandmother from Newcastle, New South Wales. She works in an aged care home and earns about $35,000 a year.

After her divorce in 2013, Renee struggled with the increased cost-of-living expenses. More than 30% of her income went to renting her home.

She had to borrow money to pay for everyday expenses, and owed $15,000 to a range of creditors – banks, lawyers and utilities. She didn’t own any assets that could be sold to cover her debts.

In mid-2016, Renee became bankrupt. Her trustee is the Official Trustee (AFSA).

In late 2017, Renee’s mother passed away. The executor of her mother’s will told Renee she was due to receive an inheritance of $45,000. Renee let AFSA know, as she knew she needed to report any money or assets she got while she was bankrupt.

AFSA contacted the executor and told them they needed to pay the inheritance directly to AFSA.

AFSA used the money to pay a government levy, its fees for administering the bankruptcy, plus Renee’s debts and interest*. Altogether this totalled about $31,500.

Once everything was paid in full, Renee’s bankruptcy was annulled – which meant the bankruptcy finished early. Renee received the remaining $13,500 from her inheritance.

*There were no legal costs or other fees involved in this situation. If there were, the cost to annul the bankruptcy would be higher.

The Bankruptcy Act[?] does not impose any restrictions to prevent you being an executor of a will during bankruptcy.

Executors are encouraged to ensure the people receiving an inheritance are not bankrupt by doing a Bankruptcy Register Search.

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Can I buy/be given shares?

Shares and dividends are assets that the trustee can claim. This also applies to restricted shares and shares in your employer's business or a private company.