How Much Income Can A Bankrupt Earn?

One of the most common misconceptions about bankruptcy is that, once a person becomes bankrupt, they can no longer earn a substantial income or that their income will be severely restricted.

That is not the case.

Under Australia’s bankruptcy system, there is no limit on the amount of income a bankrupt person can earn. A person who voluntarily becomes bankrupt, or who is made bankrupt following a creditor’s petition, can continue to work and earn income. However, if their after-tax income exceeds a statutory threshold, they may be required to make compulsory income contributions to their bankruptcy estate.

The amount that a bankrupt may be required to contribute depends principally on their assessed income and the number of dependants they have. The thresholds are administered and indexed by the Australian Financial Security Authority (AFSA) and are updated twice a year.

How are income contributions calculated?

The basic calculation is:

(Assessed income − Actual Income Threshold Amount) ÷ 2 = annual income contribution

Assessed income is generally based on income after tax, with certain other deductions and adjustments applying under the Bankruptcy Act 1966. Importantly, the calculation is not simply based on a person's gross salary.

AFSA describes the system in straightforward terms: where a bankrupt person's after-tax income exceeds the applicable threshold, 50% of the amount above that threshold may be required to be paid to the trustee for the benefit of creditors.

AFSA Base Income Threshold Amount (BITA)

The current AFSA indexed amounts, applicable as at August 2026, are as follows. The thresholds are updated on 20 March and 20 September each year.

Base Income Threshold Amount (BITA): $75,475.40

The BITA is the starting point used to calculate the Actual Income Threshold Amount (AITA), which increases according to the number of dependants.

A practical example

Consider John Smith, who earns a gross annual income of $150,000 (inclusive of superannuation guarantee).

After allowing for income tax and Medicare levy, assume John's assessed income is approximately $101,000.

John supports his partner and two children, giving him three dependants for the purposes of the income contribution assessment, assuming they meet the relevant criteria.

Under the current AFSA thresholds, the applicable income threshold for a bankrupt with three dependants is $99,627.53.

John's calculation would therefore be approximately:

• Assessed income: $101,000

• Less applicable threshold: $99,627.53

• Amount above threshold: $1,372.47

• 50% contribution: $686.24 per year

Accordingly, despite earning a gross salary of $150,000, John's compulsory income contribution would be approximately $686 per year, based on these assumptions.

The precise amount would ultimately be determined by the trustee using John's actual assessed income and circumstances. The AFSA calculator also makes clear that the calculation is an estimate and that the definition of income for bankruptcy purposes can differ from ordinary taxable income.

Why the system works this way

The income contribution system is designed to balance the interests of creditors with the need for a bankrupt person to maintain a reasonable standard of living.

The system recognises that a person may have significant financial responsibilities, including supporting a spouse or partner and children. The higher income thresholds that apply where a bankrupt has dependants mean that the person can retain more of their income before compulsory contributions become payable.

It is therefore incorrect to assume that bankruptcy means a person must give up their employment or accept a dramatically reduced income. Bankruptcy does not generally prevent a person from working, and there is no statutory cap on the amount they can earn.

There are, however, important obligations. A bankrupt must keep their trustee informed about changes to their income and employment, and compulsory contributions may become payable when income exceeds the applicable threshold. There can also be restrictions affecting particular professions, businesses and company directorships, so individual circumstances should always be considered.

A useful message for people considering bankruptcy

Bankruptcy does not, in itself, prevent a person from continuing to work, earning a substantial salary or improving their financial position. Instead, the system provides a statutory framework under which a portion of income may be contributed to the bankruptcy estate once the applicable threshold has been exceeded.

The number of dependants is an important part of that calculation, ensuring that the system takes family responsibilities into account.

Ultimately, the income contribution regime is intended to provide a structured and predictable balance: the bankrupt can continue working and earning an income while, where their income exceeds the prescribed threshold, a proportion of that excess can be directed towards repaying creditors.

For more information, please feel free to reach out to any one of our friendly Worrells team members, who would be happy to explain the process to you should your clients require a personal insolvency appointment.

Note: AFSA's indexed amounts change periodically. The figures above are the amounts published by AFSA as of July/August 2026 and should be checked against the current AFSA indexed amounts before being relied upon for a particular bankruptcy or client assessment.