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What Assets are Protected in Bankruptcy?

After you file for bankruptcy, all assets are put into Trust for the benefit of your creditors. A Trustee manages this process that is referred to as assets vesting in the trust. It’s important to understand that the Trustee administering your bankruptcy is NOT TRYING TO PUNISH YOU! The Trustee will only sell an asset when it is likely that it will generate a benefit to your creditors after the costs of selling it (including the Trustee’s wages). Therefore, it needs to be a sizable asset for the Trustee to even bother.

There are certain assets that are protected under bankruptcy. These asset are protected from your creditors and cannot be seised or sold.

  • Most household or personal items
    • Refrigerator, freezer, washing machine, couch, TV, bed, furniture, crockery, cutlery, and mower. Unless you have some serious antiques or paintings on your walls, your household possessions are safe.
  • Tools used to earn an income
    • If you need equipment to make a living, it would be unreasonable for Trustees to take it and deprive you of your income. However, there is a limit to this. Remember, it’s a fire sale value, NOT what you paid for them.
  • Cars and motorbikes
    • Your method of transportation is protected within reason. Cars are protected up to a certain wholesale value, which generally translates to about 50% of the retail price. A loan secured against your vehicle generally exempts it from bankruptcy.
  • Superannuation funds
    • Your superannuation is protected within reason. Money put into superannuation in a deliberate effort to avoid paying your creditors can be clawed back. Any extra money put into your Superannuation before you got into trouble is generally fine.
  • Life insurance
    • Most people don’t have these anymore but if there’s a savings component to your life insurance policy it’s safe.
  • Compensation for a personal injury
    • If you’ve received compensation for any injury, this money is protected as is anything you bought with it.
  • An asset held by you in trust for someone else
    • A trustee is not going to take your kids’ savings account or Grandma’s savings account; they are all protected.
  • Awards of a cultural, academic or military nature
    • Any awards will not be taken.