Overview
On 8 July 2024, The Attorney-General’s Department announced a series of proposed amendments to the Bankruptcy Act 1966 (Cth) to ensure fairer outcomes for all Australians.
These proposed reforms to Australia’s bankruptcy laws were drafted after extensive roundtable consultation with key stakeholders from various sectors, representing both debtor and creditor interests. The reforms aim to reduce stigma and promote entrepreneurship.
The proposed bankruptcy reforms are as follows:
- Increasing the involuntary bankruptcy threshold from $10,000 to $20,000 (with indexation applied each year)
Commentary
The $20,000 threshold was trialled during the pandemic, with positive results. This reform will reduce the volume of low-debt bankruptcies and will provide more breathing space for debtors navigating financial difficulty during a challenging economic climate. This reform will likely trigger a change in the lending practices of credit providers (e.g. reduced availability of credit, higher interest rates and collateral requirements).
- Changing the bankruptcy notice response period from 21 days to 28 days
Commentary
Increasing this period will give the debtor more time to obtain advice concerning their financial position and negotiate an agreement with creditors.
- Proposal or acceptance of a debt agreement will no longer be an “act of bankruptcy” for the purposes of s 40(1) of the Bankruptcy Act
Commentary
This amendment will prevent creditors from petitioning the debtors’ bankruptcy if the debt agreement fails or is somehow incomplete. This will provide greater flexibility for the debtor to negotiate, knowing they won’t be automatically exposed to bankruptcy proceedings.
- Changes to the National Personal Insolvency Index, making the official record of a discharged bankrupt publicly available for only 7 years (the record was previously permanent)
Commentary
This proposed reform aims to reduce the punitive nature and stigma associated with bankruptcy. Reducing the record period also aligns more closely with standard credit reporting practices (two years starting from the day bankruptcy ends).
