Written by John Chand in September, 2009

The Government is well aware that the “2008 to 2009 financial year produced the highest ever level of personal insolvency activity (36,479) representing an increase of 11 percent on the 2007 to 2008 financial year level of personal insolvency activity with the vast majority of these being non-business bankruptcies principally involving consumer debts”

Whether it was in response to the increase in consumer debt or just coincidence, the Attorney-General Robert McClelland released an Explanatory Memorandum on 25 August 2009 of the Government’s proposed reforms to Australia’s personal Bankruptcy laws.

The Amendments aim to modernise the National Personal Insolvency Scheme by giving those in financial difficulties additional protection against unscrupulous Creditors and an opportunity to evaluate and consider their options prior to entering into a Debtor’s Petition while in turn strengthening penalties for Bankrupts not complying with the Bankruptcy Act (“the Act”) by:

1. Increasing the threshold amount for which a creditor may petition for bankruptcy from $2,000 to $10,000 in an attempt to reduce the opportunity for creditors to use bankruptcy procedures as a means of debt collection.

1. Increasing the stay period from when a debtor files his/her intent to file bankruptcy from 7 to 28 days to give persons in financial distress more time to assess their options and to prevent them from acting precipitously.

1. Increasing the income, assets and debt thresholds used in assessing persons’ eligibility for debt agreements in recognition of the increases in debt, wealth and available income to allow more people in financial distress to enter into debt agreements with their creditors and forego bankruptcy.

1. Increasing penalties in relation to actions that hinder the administration of insolvent estates in an attempt to further promote increased compliance by the bankrupt with his/her obligations under the Act to protect creditors from behaviour that may expose them to debtors that don’t pay, or behaviour that will impact on the likelihood of a dividend being received from an insolvent Estate.

The amendments also aim to provide a more efficient approach to settling disputes regarding Trustee remuneration by replacing the old Insolvency Practitioner Association Australia scale as a basis for default assessment of Trustee remuneration with a fixed minimum fee of $5,000, while also providing Bankrupts and Creditors with a more transparent process for reviewing that remuneration.

The Government has also proposed amendments which aim to maintain a more accurate National Personal Insolvency Index and provide more flexibility in the administration of insolvent Estates, by penalising Trustees for not providing the Official Receiver with relevant and current information regarding the administration of insolvent Estates in a timely manner and removing the outdated concept of bankruptcy districts.

In addition to increasing the penalties imposed by the Act, further powers are given to the Inspector-General in Bankruptcy to investigate possible offences and breaches of the Act.

The amendments address the major changes occurring in today’s consumer and financial markets by providing consumers who have fallen on hard times with more protection against scrupulous creditors and more time to make informed decisions regarding their financial affairs while at the same time increasing penalties for breaches of the Act and simplifying certain aspects of the administration process.

The reforms proposed by the Government show their commitment to “deal with personal insolvency issues quickly and efficiently so that people can get back on their feet as soon as possible.”