Running a business during bankruptcy
Adrian is a 36-year-old tradie from Queensland. They run their own odd-jobs business, called Adrian's Assistance. Adrian earns $40,000 a year.
Adrian and their partner rent their apartment in Logan City. Adrian owns a van worth $6,000 which is used for work. Adrian 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 the business. Adrian was surprised to discover they owed $100,000 of business-related debt to the Australian Tax Office (ATO).
Also, being a tradie, Adrian's income can be inconsistent. They rely on credit cards to pay for essentials, and owe the bank $20,000.
Adrian spoke to their accountant, who referred them to a registered trustee to discuss bankruptcy.
The registered trustee explained to Adrian some of the ways bankruptcy would affect them:
- Adrian would be released from the unsecured debt (ATO* and credit card)
- Adrian could keep the van because its value is below the vehicle threshold**
- They could also keep the work tools because their value is below the threshold**
- Adrian could continue to work as a sole trader. However, would either need to tell people about the bankruptcy, OR change the business name to include their full name
- Adrian would not have to make compulsory income payments, due to earning 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.
Note: 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.