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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.