What assets can I keep if I go bankrupt?

In Plain English

If you're facing bankruptcy, not all your possessions will be sold off to pay your debts. The Bankruptcy Act 1966 and the Bankruptcy Regulations 2021 outline certain assets you can keep.

These include:

Property held in trust: Assets you're holding for someone else.
Essential household items: Basic furniture, beds, and items for children's education. Also included are kitchen equipment, cutlery, bedding, linen and towels.
Items with sentimental value: Non-monetary awards (sporting, cultural, military, or academic).
Tools for earning income: Items you use to make a living, up to a certain value ($3,800 as of July 2021, but this amount may be indexed).
A car: If you use a vehicle primarily for transport, up to a certain value ($8,100 as of July 2021, but this amount may be indexed).
Life insurance and superannuation: Certain life insurance policies and superannuation funds are protected.
Compensation for personal injury or death: Damages you receive for personal injury or the death of a loved one.
Payments from the National Redress Scheme: Payments related to institutional child sexual abuse.

Keep in mind that creditors can sometimes make resolutions to allow you to keep certain household items or tools even if they exceed the prescribed limits.

Detailed Explanation

Section 116 of the Bankruptcy Act 1966 specifies the property that is divisible among creditors. However, subsection 116(2) carves out exceptions, listing property that is not divisible. This means a bankrupt individual can retain ownership of these assets.

The key categories of protected assets, as detailed in subsection 116(2) of the Bankruptcy Act 1966 and further defined in the Bankruptcy Regulations 2021, include:

Trust Property: Property held by the bankrupt in trust for another person is excluded from divisible property, as per Bankruptcy Act 1966 section 116(2)(a).
Household Property: Bankruptcy Act 1966 section 116(2)(b) refers to household property prescribed by regulations. Bankruptcy Regulations 2021 section 27(1) further defines this, including basic household property (furniture, beds, educational items for children, one TV, stereo, radio, washing machine/dryer, refrigerator/freezer, generator, telephone, home entertainment appliance, personal computer, and internet access equipment). It also includes other property reasonably appropriate for a household, considering the number and ages of household members, health needs, climate, and the property's necessity for a viable household (Bankruptcy Regulations 2021 section 27(3) and (4)).
Property with Sentimental Value: Bankruptcy Act 1966 section 116(2)(ba) protects personal property with sentimental value, as prescribed by regulations and identified by a special resolution of creditors. Bankruptcy Regulations 2021 section 28 specifies that non-monetary sporting, cultural, military, or academic awards fall into this category.
Tools of Trade: Bankruptcy Act 1966 section 116(2)(c) protects property used by the bankrupt to earn income, up to a prescribed value. Bankruptcy Regulations 2021 section 29 sets this limit at $3,800 as of July 2021, subject to indexation. Creditors can also pass a resolution or the Court can make an order to allow the bankrupt to keep tools of trade exceeding this value.
Means of Transport: Bankruptcy Act 1966 section 116(2)(ca) protects a vehicle used primarily for transport, up to a prescribed value. Bankruptcy Regulations 2021 section 30 sets this limit at $8,100 as of July 2021, subject to indexation. Creditors can also pass a resolution to increase this amount.
Life Insurance, Superannuation, and RSA: Bankruptcy Act 1966 section 116(2)(d) protects certain life insurance policies, superannuation funds, and Retirement Savings Accounts (RSAs).
Damages for Personal Injury or Death: Bankruptcy Act 1966 section 116(2)(g) protects damages or compensation for personal injury or wrong done to the bankrupt or their family, or in respect of the death of their spouse/partner or family member.
National Redress Scheme Payments: Bankruptcy Act 1966 section 116(2)(ga) protects payments under the National Redress Scheme for Institutional Child Sexual Abuse.

It's important to note that the creditors can pass resolutions to allow the bankrupt to retain certain household property (Bankruptcy Act 1966 section 116(2)(b)(ii)) or tools of trade (Bankruptcy Act 1966 section 116(2)(c)(ii)) even if they exceed the prescribed limits. The bankrupt can also apply to the Court for an order to retain tools of trade (Bankruptcy Act 1966 section 116(2)(c)(iii)).