Sole Trader Bankruptcy in NSW: Complete 2025 Guide by Licensed Trustee

Sole Trader Bankruptcy in NSW: Complete 2025 Guide by Licensed Trustee

Two Paths to Bankruptcy

1. Voluntary Bankruptcy (Debtor's Petition)

   1. You initiate the process yourself

   2. Complete Form 1 (Debtor's Petition) and Form 2 (Statement of Affairs)

   3. Submit to AFSA or a registered trustee like TTJ Advisory

   4. Immediate protection from most creditor actions

   5. No court involvement required

2. Creditor's Petition

   1. Creditor owed $10,000+ initiates through Federal Court

   2. Must have served a Bankruptcy Notice first

   3. You have 21 days to respond to the notice

   4. Court hearing determines outcome

   5. More costly and public than voluntary bankruptcy

      
      

The Bankruptcy Process for NSW Sole Traders

1. Initial Assessment

   Meet with TTJ Advisory for a free, confidential assessment of your financial position and explore all options including alternatives to bankruptcy.

2. Preparation

   If bankruptcy is appropriate, we help prepare your Statement of Affairs, listing all assets, liabilities, income, and expenses.

3. Lodgement

   Submit your bankruptcy application to AFSA. Bankruptcy begins immediately upon acceptance.

4. Trustee Appointment

   You can nominate TTJ Advisory as your trustee, or AFSA will appoint one. Your trustee manages your bankruptcy estate.

5. Duration

   Standard bankruptcy period: 3 years and 1 day from filing date. Can extend to 5 or 8 years for non-compliance.

6. Discharge

   Automatic discharge after the bankruptcy period, releasing you from most debts.

TTJ Advisory as Your Bankruptcy Trustee

When you appoint Thyge Trafford-Jones as your registered bankruptcy trustee, we:

Manage Your Estate

• Take control of divisible assets

• Investigate your financial affairs

• Realise assets for creditor benefit

• Distribute funds according to legal priorities

Support Your Fresh Start

• Explain your rights and obligations clearly

• Assist with income assessment submissions

• Handle creditor communications

• Provide guidance on trading during bankruptcy

• Work towards early discharge where possible

Why Choose TTJ Advisory?

✓ AFSA Registered Bankruptcy Trustee

✓ Licensed Insolvency Practitioner

✓ Specialised in sole trader and small business insolvency

✓ Sydney-based with Australia-wide service

✓ Free initial consultation

Asset Management & Protection in Bankruptcy

Protected Assets (You Keep These)

Divisible Assets (Trustee May Sell)

• Business equipment over threshold values

• Stock and inventory

• Debtors/accounts receivable

• Real estate (including family home)

• Investments and shares

• Luxury items and collections

• Cash and bank accounts over reasonable amounts

Continuing to Trade as a Sole Trader During Bankruptcy

Yes, You Can Keep Trading, But...

Key Restrictions When Trading:

• Must disclose bankruptcy when obtaining credit over $6,850

• Cannot trade under a registered business name without trustee permission

• Cannot be a company director

• Must inform trustee of business activities

• May need licencing body approval for some trades

Practical Trading Considerations

• Bank Accounts: Existing accounts may be frozen; open new account with bankruptcy-friendly institution

• ABN: Can maintain your ABN and continue invoicing

• GST Registration: Can remain GST registered if required

• Contracts: New contracts are enforceable; pre-bankruptcy contracts may be affected

• Insurance: Professional indemnity may be difficult to obtain

Industry-Specific Restrictions

Some industries have additional requirements:

• Building/Construction: Must notify NSW Fair Trading; may affect licence

• Real Estate: Cannot hold a real estate licence

• Financial Services: Restrictions on providing financial advice

• Legal/Accounting: Professional body notification required

• Security: May affect security licence eligibility

Income Thresholds for NSW Sole Traders 2024-25

Current Income Contribution Thresholds

You can earn the following amounts (after tax) without making compulsory contributions:

How Contributions Work

• Pay 50% of income above the threshold to your trustee

• Assessed on after-tax income including wages, business income, and some benefits

• Excludes: Family Tax Benefits, child support received, some pensions

• Business expenses deductible before assessment

Example Calculation:

Sole trader with no dependants earning $80,000 after tax annually:

• Income: $80,000

• Threshold: $64,775

• Excess: $15,225

• Annual contribution: $7,612.50 (50% of excess)

• Monthly payment to trustee: $634.38

  
  

Alternatives to Bankruptcy for NSW Sole Traders

Before proceeding with bankruptcy, TTJ Advisory will explore these alternatives:

1. Personal Insolvency Agreement (PIA)

• Formal agreement with creditors to pay less than full debt

• Avoid bankruptcy restrictions

• Keep trading without disclosure requirements

• Suitable for debts over $400,000 or complex affairs

• Requires creditor approval via meeting

  
  

2. Small Business Restructuring (SBR)

• For incorporated small businesses with liabilities under $1 million

• Maintain control while restructuring

• 20 business days to develop plan

• Creditors vote on restructuring plan

  • Note: Requires company structure, not available for pure sole traders

    
    

3. Informal Arrangements

• Direct negotiation with creditors

• Payment plans or settlements

• No formal insolvency appointment

• Maintains complete control and privacy

• Best for smaller debts or temporary difficulties

  
  

4. Debt Agreements (Part IX)

• For unsecured debts under $139,967

• Assets under $279,935, income under $104,975

• Formal arrangement without bankruptcy

• Administered by registered agreement administrator

  
  

Which Option Is Right for You?

The best solution depends on your specific circumstances. TTJ Advisory provides a free consultation to assess your situation and recommend the most appropriate path forward.

Get Expert Bankruptcy Advice: Book a Free Consultation in Sydney

What to Bring to Your Consultation

• List of debts and creditors

• Recent tax returns and financial statements

• Asset details (property, vehicles, equipment)

• Business income and expense records

• Any legal notices received

  
  

Our Commitment

✓ Confidential discussion of all options

✓ No obligation to proceed

✓ Clear fee structure explained upfront

✓ Same-day response to urgent matters

✓ Ongoing support throughout the process

Related Resources

• 5 Critical Elements of a Successful Personal Insolvency Agreement (And Why Most Fail Without Professional Help)

• Don't Panic: A Practical Action Plan for Managing Personal Insolvency

• Navigating Financial Distress: Insights on ATO Collection, Payment Plans, and Formal Insolvency Options in Australia

Last updated: November 2025 | TTJ Advisory is a registered insolvency practice led by AFSA-registered bankruptcy trustee Thyge Trafford-Jones. This guide provides general information only and does not constitute legal or financial advice. Individual circumstances vary - contact us for advice specific to your situation.