For women in business and professionals, there are often multiple and complex reasons why debt may start to build up, and they begin considering bankruptcy.
Readons for considering bankruptcy
Reasons for considering bankruptcy can include business cashflow issues and non-payment of invoices and taxes to personal circumstances such as divorce, having a family, blending families and even the impact of gambling,which can chip away at cash reserves and lead to mounting debts becoming more and more difficult to pay.
I’ve seen so many hardworking women who don’t know how they’re going to pay for their children’s school fees or their weekly mortgage or rent repayments and when unsecured debts spiral, despair can often set in.
The first thing I tell anyone considering bankruptcy is that they’re not alone.
As someone who has spoken with many professional women dealing with complex financial situations, often, instead of bankruptcy being seen as the last and worst option, in some cases it can be the best option for those desperately looking for a solution to their financial woes.
In fact, there are many myths around bankruptcy. So, here’s the Aravanis crash course for anybody considering bankruptcy in understanding how personal insolvency effects future earnings and your employment status:
Income
The most common misconceptions I hear about income and considering bankruptcy are;
- “You’re only allowed to earn up to XYZ amount”
- “Your wages are taken away and you’re given an allowance to live on” and;
- “Your wages are automatically garnished”
Ladies, you’ll be pleased to learn that all of the above are wrong. Let’s delve into why:
“You’re only allowed to earn up to XYZ amount”
You’re actually allowed to earn as much as you like. The confusion here usually comes from people not understanding how income is assessed in bankruptcy.
You may need to pay an amount from your income during the 3-year bankruptcy period but for many working women with families; income contributions differ depending on a range of factors like your number of dependents, any child support payable, salary sacrifice and fringe benefits.
The basic formula for calculating your income contributions in bankruptcy is: your net (after tax) assessable income – the relevant threshold divided bytwo.
The threshold relevant to you will be determined by the number of dependants you support. A person is considered to be a dependant if they live with you most of the time and earn less than $3,581 per year.
These are the current threshold amounts as at 2 May 2018:
| Number of Dependants | Income limit/threshold |
| 0 | $56,674.80 |
| 1 | $66,876.26 |
| 2 | $71,977.00 |
| 3 | $74,810.74 |
| 4 | $75,944.23 |
| Over 4 | $77,077.73 |
For example, if you’re earning $120,000 gross taxable and you’re supporting two dependent children, your income may be assessed as follows:
| Gross Taxable Income | $ 120,000.00 |
| Less: Tax payable | $ 34,462.00 |
| Equals Net Assessable Income | $ 85,538.00 |
| Less: Threshold for 2 dependants | $ 71,977.00* |
| Equals Excess | $ 13,561.00 |
| Annual Liability (excess divided by 2) | $ 6,780.50 |
| Monthly Payments | $ 565.04 |
*Based on the AITA threshold for two dependants
Note: Other factors such as child support payable, Fringe Benefit Tax and salary sacrifice can impact how your net assessable income is calculated in bankruptcy.
“Your wages are taken away and you’re given an allowance to live on”
You’ll still receive your income as per usual.
If you’re liable to contribute a portion of your earnings towards your bankruptcy, your trustee will send you an assessment outlining how much you need pay, along with a payment schedule that matches your pay cycle and the account details of where to make those payments to.
“Wages are automatically garnished”
This typically only happens when people fail to pay their income contributions independently. If you make your payments yourself, there’s no reason for your trustee to issue a garnishee order as a last resort.
Job security when considering bankruptcy
We see professionals such as consultants, accountants, solicitors,marketers, account managers, engineers and analysts filing for bankruptcy and often they come to us concerned about losing their jobs if they’re ‘found out’.
The Bankruptcy Act doesn’t specifically enforce any restrictions on your occupation or employment.
However, there may be certain limitations imposed by the professional associations or licensing authorities of particular trades or professions. You should contact your professional association or licensing authority to confirm whether there is any effect on your membership or ability to practice a particular trade during bankruptcy.
The AFSA website provides a comprehensive list of trades and professions where restrictions may apply. Remember that this doesn’t mean you can’t continue to work in your profession; it means that there may be restrictions or limitations, and that you should seek advice from the relevant licensing or professional body.
We recommend that when considering bankruptcy you also review your employment contract (as well as any other regulations which govern your employment) to see if bankruptcy will affect your job. If you do find clauses in your contract regarding bankruptcy, being insolvent under administration or committing an act of bankruptcy (which also covers Debt Agreements and Personal Insolvency Arrangements), we would further recommend that you have a confidential discussion with your immediate manager or HR department to determine whether or not bankruptcy will prevent you from continuing in your current role.
Many of our clients have found clauses within their employment contracts but, after discussing their situation with their employer, they were still able to file for bankruptcy and remain in their current roles. At the end of the day, it comes down to your particular circumstances, and it might require some independent research on your part before you file for bankruptcy
An example of a professional who may be impacted by bankruptcy is a solicitor. The Law Society of NSW issues ‘Practising Certificates’ and a bankruptcy-related event automatically becomes a ‘show cause event’. This requires the solicitor to show cause and explain why, despite the event, they consider themselves to be still fit and proper to hold a practising certificate.
If the Law Society then determine whether the solicitor is still fit and proper to continue practising, it may also impose an undertaking (or limit) on the Solicitor’s Practising Certificate. This specifies any areas of the law in which they are prevented from practising, such as:
- Handling trust accounts
- Acting as the trustee for any real or personal property
- Acting as an executor or administrator of a deceased person’s estate, or
- Any role or instrument whose authority can ‘exercise the disposition of property and not engage in any activity from which a bankrupt person is disqualified from under any Federal or NSW law’ until they are discharged from their bankruptcy.
To be clear, bankruptcy isn’t a blanket solution for everyone but for some–it’snot the ‘last ditch’ option most people believe it to be. At Aravanis we’re passionate about helping people get out of tricky spots and bankruptcy can often be a much easier process to go through, than what is portrayed in the media.
There is a lot to understand when considering bankruptcy, so to learn more about how your home and car are treated in bankruptcy click here <link to Part 2>, to read about some of the most common myths surrounding bankruptcy click here <link to Part 3>.
