New bankruptcy legislation in Australia

Becoming bankrupt is like buying a car or trying to get pregnant – everywhere you go you see 1993 SAAB convertibles or babies. Whenever I hear or see the word “bankrupt”, my ears prick up. So the recent changes in bankruptcy laws in Australia caught my attention and I thought I’d mention it in case anyone missed it. Keep in mind that this is the amateur ramblings of someone with no financial qualifications and I’m happy to be corrected if I’ve misinterpreted anything so post a comment or send me an email.

The Bill to amend the bankruptcy laws was introduced to the House of Representatives back in October 2009 and was passed by both houses on 24 June 2010. The aim of the amendments is to “modernise the national personal insolvency scheme and to make it more efficient.” This suggests that the nature of bankruptcy has changed and the law has had to change with it.

The most tangible change is that a creditor cannot force you into bankruptcy for a debt less than $10,000. This makes sense to me as I was easily able to access unsecured credit up to $50,000 which was less than my annual income at the time. Whilst my debts were business related, most people I know have easy access to at least $10,000 in retail credit and credit cards even if their income is quite low. Previously, a creditor could force you into bankruptcy for a $2,000 debt! Mind you, you can still enter into voluntary bankruptcy for less than $10,000 if you can prove that you are insolvent but you would probably be better to enter into a Part IX Debt Agreement instead.

Which brings me to another significant amendment included in the Bill. The income threshold for Part IX Debt Agreements has been increased by 20% and the threshold for debt eligibility has also been raised which I think is great news. Not applicable to me, of course, my debts were off the scale but hopefully a second chance for anyone looking down the barrel of bankruptcy. Part IX Debt Agreements really are the cat’s pyjamas from a creditor and a debtor point of view. The creditor gets more of their money back and the debtor avoids the stigma of being a bankrupt. According to the figures cited by ITSA, Debt Agreements are on the rise and I think many people could relate to this trend. Considering the increase in the average income in Australia (and the crazy amount of credit available during the boom) this amendment would provide welcome relief for many Australians.

Another amendment to the law is the extension of the stay period between when a debtor files their intention to declare bankruptcy and when the creditor can take action. Previously, a debtor only had seven days, this has been extended to 28 days. During the stay period you suspend all your payments and the creditor cannot harass you so you can take a breath and try to figure out what the hell you are going to do.

Some of the other amendments to the laws are:

• Increased powers of the Trustee to investigate the Debtors Statement of Affairs – so don’t try to hide anything!
• More transparency in the fee structure of the Trustee – this will be particularly helpful when dealing with the more aggressive financial crisis consultants.
• Provisions relating to offences so that people declaring bankruptcy due to illegal activity are dealt with effectively – if you haven’t done anything illegal then this shouldn’t be a problem and, if you have, then more fool you.

Personally, I appreciate the intentions of the amendments and I think that they will go some way to assisting those people who find themselves out of their depth and genuinely need help to dig themselves out.

If you want to read more about the amendments, here are a few links to the Minister’s speech, a professional review by the Insolvency Practitioners Association of Australia and also the legislation itself.