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ARTICLE · 07 OCTOBER 2026

Asset Protection During Bankruptcy

Asset protection during bankruptcy depends on genuine ownership, not trust labels. Property held for others is generally excluded from a bankrupt estate, but beneficial interests, trust debts, and trustee indemnities may still be recoverable. Transfers into trusts can be challenged under undervalue or creditor-defeating provisions if timing, consideration, and purpose raise concerns.

AustraliaInsolvency/Bankruptcy/Re-Structuring

Article Summary

A family trust does not automatically protect assets when a person becomes bankrupt. Property genuinely held for others is generally excluded from the bankrupt estate, but the bankrupt’s own beneficial interests, loans owed by the trust, powers and trustee indemnity may still matter.

A bankruptcy trustee may also challenge earlier transfers into a trust, particularly undervalued transfers under section 120 or transfers made with a creditor-defeating purpose under section 121 of the Bankruptcy Act 1966 (Cth).

The outcome depends on the trust deed, ownership and funding records, the timing and value of each transfer, and the evidence of its purpose.

In this article, our insolvency lawyers explain asset protection during bankruptcy in more detail.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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