Amendments to Bankruptcy Legislation

You may or may not have heard, but the Federal Government has recently proposed a number of changes to the laws relating to bankruptcy.

On the 25th of August, Attorney-General, Robert McCelland, released the Bankruptcy Ammendment Legislation 2009. According to an official press-release, the bill “seeks to modernise personal insolvency arrangements by recognising that the majority of bankruptcies relate to consumer debts and involve people with relatively few assets and little income.”

In other words, our representatives in Canberra have realized that working Australians, not the “Bonds” and the “Skases,” are the ones most often hit by bankruptcy.

Here’s a summary of the proposed changes:

• Previously, creditors could force bankruptcy on anyone with debts of more than $2000.00. This minimum has been raised to $10000.00.
• Debtors must now receive 28 days notice before creditors can take legal action to recover debts. The grace period used to be only 7 days.
• Voluntary debt agreements are apparently easier to get. The minimum asset, income and debt thresholds have all been raised.

So what does all this bankruptcy reform mean for everyday Aussies? Not much, really. Those with smaller debts no longer have to worry about being made bankrupt. But that does not remove the responsibility to pay the debt. Creditors can still take action to recover debts of less than $10,000.00. They can have the courts impose a garnish on your wages. They can have a Sherriff come around and take your stuff. They just can’t force you into bankruptcy.

A 28 day grace period isn’t going to make much difference either. Bankruptcy is usually the result of several years of finanicial difficulties. For most people, 28 days is still not enough time to fix the underlying problems and avoid bankruptcy altogether.

But what about debt agreements? These are a valuable alternative to bankruptcy, and making them more widely available must surely be a good thing. Right? Well, sort of. Anyone ineligible for a debt agreement can still apply for a personal insolvency agreement, which is basically the same thing. So the new bankruptcy legislation hasn’t really made anyone better off.

In a nutshell, the new legislation appears to be a political move designed to make the government look like they care, without actually doing anything to help individuals at risk of bankruptcy. Sure, the official bankruptcy rate will fall due to less people being forced into bankruptcy. But those people who would have been made bankrupt under the old system are still left in financial distress. The situation for these people has not changed.

If anything, bankruptcy amendments will require those with small debts to take greater responsibility for their financial affairs. Without the threat of bankruptcy, some debtors may think that they can put off managing their financial affairs, or that the problem will sort itself out. It won’t. And a $2,000.00 debt can quickly turn into a 10,000.00 debt if left unattended. If you’re struggling with your finances, it’s best to seek help now rather than risk bankruptcy in a few years time.