Debt Options, Thresholds and 2026 Rules
What you can keep in bankruptcy: home, car, super, tools of trade and household items
Which assets are protected when you go bankrupt in Australia in 2026, the indexed limits for vehicles and tools of trade, what happens to your home and super, and traps to avoid.
When you become bankrupt in Australia, most of your property "vests" in the trustee, who can sell it for creditors, but the Bankruptcy Act 1966 protects certain assets. You can generally keep ordinary household items, tools of trade up to an indexed value ($4,600 for bankruptcies in the 2026–27 financial year), one or more vehicles up to a combined indexed value ($9,950 for 2026–27), money in regulated superannuation funds (with exceptions for contributions made to defeat creditors) and some compensation payments for personal injury. Your share of a home is not protected: it normally passes to the trustee, who may sell it, accept a buy-back from a partner or relative, or leave it if there is little equity. These two limits are set in the Bankruptcy Regulations 2021 (ss 29–30) and indexed to CPI each 1 July, and the one that applies depends on the date of your bankruptcy. Check the current limits on AFSA's indexed amounts page.
This guide is part of the overview of debt help options. It is general information; get advice if you own property.
Protected and divisible property at a glance
| Asset | Usually protected? | Notes |
|---|---|---|
| Household furniture and goods | Yes, if ordinary | Items of special value, such as art, collectables or luxury goods, can be taken |
| Tools of trade | Yes, up to an indexed limit ($4,600 for 2026–27) | Tools, equipment and books you use to earn income |
| Vehicles | Yes, up to a combined indexed value ($9,950 for 2026–27) | Value is your equity: market value less finance owing |
| Regulated super funds | Generally yes | Contributions made to defeat creditors can be recovered; money withdrawn into a bank account is not protected |
| Life insurance and some policies | Often | Depends on the policy type |
| Personal injury compensation | Generally yes | Including property bought with it, within limits |
| Home or land | No | Your share vests in the trustee |
| Cash, savings, shares, crypto | No | Wages in your account after the date of bankruptcy are generally treated as income, not property |
| Inheritances during bankruptcy | No | Property you become entitled to before discharge is generally available to creditors |
| Tax refunds for pre-bankruptcy periods | No | Usually paid to the trustee |
Some figures above are AFSA indexed amounts and can change. The car figure applies to the total equity in all vehicles you keep.
Your car: worked example
Illustrative example: your car is worth $14,000 and you owe $6,000 on a car loan. Your equity is $8,000, which is under the $9,950 limit, so the trustee would usually not sell it. You must keep paying the car loan, because the financier keeps its security. If the car were worth $22,000 with $6,000 owing, your equity of $16,000 would be over the limit; the trustee could sell it, pay out the loan, keep the excess above the protected amount for creditors, or let you or a relative buy back the excess equity.
Your home
Your interest in a home vests in the trustee on bankruptcy. What happens next depends on the equity:
- Little or no equity: the trustee may decide sale would not benefit creditors, but the trustee's interest can remain for years, including after discharge, and may be realised later if prices rise.
- Some equity: a partner, relative or friend can offer to buy the bankrupt's share at market value less costs.
- Substantial equity: the trustee may sell. A co-owner's share is protected for the co-owner, but the property may still be sold to realise your share.
You keep paying the mortgage while the trustee decides, otherwise the lender can enforce its security. If keeping the home is your priority, compare a debt agreement (which allows terms up to 5 years for home owners) or a personal insolvency agreement.
Superannuation
Money in a regulated superannuation fund is generally protected and does not go to the trustee. Exceptions:
- contributions made to defeat creditors, especially large contributions shortly before bankruptcy, can be recovered by the trustee,
- super paid out to you, for example on early release, becomes ordinary money and is not protected once it is in your account,
- self-managed super funds have specific rules; take advice.
People sometimes ask whether to withdraw super on hardship grounds to pay debts. Before you do, get advice: super is generally protected in bankruptcy, so using it to pay unsecured debts can leave you worse off if bankruptcy happens anyway.
Property transferred before bankruptcy
A trustee can recover property you gave away or sold for less than its value before bankruptcy, within time limits that depend on who received it and why. Typical examples are transferring a house share to a partner, paying a family member ahead of other creditors, or selling a car cheaply to a friend. Doing this in the months before filing is one of the most damaging mistakes; see debt help mistakes to avoid.
How protected assets compare across options
| Option | What happens to assets |
|---|---|
| Hardship variation or informal plan | You keep everything; secured lenders keep their rights |
| Debt agreement | You keep your assets, but must be under the property limit |
| Personal insolvency agreement | Depends on what your proposal offers |
| Bankruptcy | Divisible assets go to the trustee; protected assets stay with you |
Frequently asked questions
Can I keep a car worth more than the limit?
The trustee can sell it, or you or someone else can pay the trustee the value above the protected amount. Some people swap to a cheaper vehicle, but transactions before bankruptcy can be examined, so get advice first.
Is my KiwiSaver or overseas pension protected?
Overseas schemes are not Australian regulated super funds, so the protection may not apply in the same way. Get specific advice.
What happens to money I earn during bankruptcy?
Wages are income, not property. They are dealt with through income contributions rather than seized as assets, but savings you build up from income can still be examined.
Sources
- Australian Financial Security Authority — what you keep, indexed amounts, the family home
- Federal Register of Legislation — Bankruptcy Act 1966 s 116 (property divisible among creditors)
- Australian Taxation Office — early release of super and tax debts
- National Debt Helpline — free advice before you decide
