Consumer advocates have been calling for urgent reform for some time and last year outlined key pressure points during a round-table discussion organised by the Federal Attorney General, Mark Dreyfus KC.
“It is vital for bankruptcy laws to be fair and safe, especially for people experiencing vulnerability because for years, it has been far too easy for a person in debt to be forced into bankruptcy,” said Consumer Action Law Centre CEO, Stephanie Tonkin.
“Doubling the threshold to $20,000 and importantly indexation, will save many people from losing everything because of a small debt. Bankruptcy should be an option for people in genuine insolvency, not a debt collection tool and these reforms are a first step to preventing unnecessary harm.”
Ms Tonkin said the current lifetime listing for people who go bankrupt on the NPII was far too punitive, but reducing the listing to seven years (after the three-year bankruptcy period), although welcome, is still out of step with community expectations.
“Many of the clients we assist have few assets, so we welcome the Attorney General’s commitment to consulting on a new and simplified bankruptcy procedure for debtors with minimal assets. This is an easy fix which will have an enormous positive impact on people doing it tough,” she said.
Karen Cox, CEO at the Financial Rights Legal Centre agrees that as a package these reforms are very welcome and address many long-held concerns about fairness in the system.
“Setting a higher threshold before someone can be forced into bankruptcy, giving people a genuine fresh start rather than a lifetime listing, and allowing people to propose an arrangement to repay some of their debts through a debt agreement without risking being forced into bankruptcy for their trouble are very important changes to rebalance the system. Introducing a minimal asset procedure could be a game changer.”
Cox also noted that consumer advocates wanted the threshold raised significantly higher.
“Bankruptcy proceedings can be used as a harsh debt collection tool for relatively small debts. Too often we see people forced into bankruptcy because legal and other fees alone take the debt over the threshold, particularly in relation to strata levies. State governments need to step up and make sure the rules around the collection of strata levies don’t force people in temporary hardship into a vicious cycle of additional fees and charges from which they can never recover.”
Financial Counselling Australia Co-CEO Dr Dominique Meyrick says the reforms represent a significant improvement to the current bankruptcy regime.
“Calls and chats to financial counsellors on the National Debt Helpline and Small Business Debt helpline are increasing, and financial counsellors see just how easy it can be for a person to be forced into bankruptcy under the current regime. While we would have like the threshold to be higher, these changes give clients breathing room to explore other options,” says Dr Meyrick.
Carmel Franklin, CEO of Care said that many people facing bankruptcy have little or no assets for a creditor to recover from. “We look forward to the introduction of a tailored process to ensure minimal asset bankruptcies are appropriate.”
