So what’s new in the exciting world of insolvency legislation? A whole lot, apparently. Attorney General Robert McClelland released the Bankruptcy Amendment Bill 2009. The bill proposes that a number of changes be made to the current laws surrounding bankruptcy. In an official press release, Mr. McClelland noted that the majority of bankruptcies related to consumer debts, and typically involved people with limited income and few assets. Supposedly, the new legislation is designed to make life a little easier for this segment of the population.
A summary of the proposed changes is provided below:
- Debtors cannot be forced into bankruptcy over debts of $10,000 or less. Previously, this limit was only $2,000.
- Currently, creditors have to give 7 days notice before taking legal action to recover a debt. Under the new laws, creditors would have to give 28 days notice.
- The legislation would make debt agreements more widely available by easing restrictions on asset, debt levels and income.
- Extending the bankruptcy notice period to 28 days might help a small number of people, but it’s hardly going to make a difference to those in severe financial strife. Bankruptcy is usually the result of several regrettable decisions made over a number of years. In most cases, an extra 28 days is not going to be enough time to fix several years worth of damage and avoid bankruptcy altogether.
- The bankruptcy legislation proposes to reduce the individual bankruptcy risk by making Debt Agreements easier to get by increasing the debt and asset thresholds by 20%. Debt agreements are a valuable alternative to bankruptcy, and easing the restrictions would make them more accessible. But, in the past, anyone ineligible for a debt agreement could still apply for a personal insolvency agreement, which does almost exactly the same thing. So the new bankruptcy laws don’t actually make anyone better off.
It’s all just a bankruptcy band-aid.
According to the press release, the bankruptcy reforms are designed to take the pressure off debtors and enable individuals to get back on their feet as soon as possible. But, in my opinion, the bankruptcy reforms are more like a band-aid solution that fails to address the underlying problems.
Creditors can still take action to recover debts of less than $10,000, they just can’t force you into bankruptcy. Instead, they might petition the courts to put a garnish on your wages, or send a Sheriff in to confiscate your stuff.
So in reality, the legislation might reduce the number of involuntary bankruptcies, but it won’t reduce the number of people in financial difficulties.
Debt Mediators Australia