BANKRUPTCY

As a consequence of the pandemic the Government has made significant changes to the Bankruptcy Act. The changes were scheduled to end in late September but the Government has now announced and will enact changes to the Bankruptcy Regulations, to extend the changes to 31 December 2020.

Last updated 11/09/2020

More information

What do the changes mean?


Forced bankruptcy

The changes mean that for any bankruptcy notice issued after 25 March 2020 and before 31 December 2020, the respondent will have a bankruptcy notice period of six months and will be protected by an increased threshold of $20,000. This means that:

  • Creditors will not be able to force bankruptcy when the debt is under $20,000
  • If a bankruptcy notice is issued the debtor has six months to either repay the debt or otherwise respond to the bankruptcy notice
  • If the creditor relies on a bankruptcy notice to force a person into bankruptcy, that process will be delayed by six months

This should mean there will be very few bankruptcy notices issued.

Forced bankruptcy before 25 March 2020

Some bankruptcy notices and creditor’s petitions to force bankruptcy were started prior to 25 March 2020. Those processes can continue at any time and these clients need to be referred for urgent legal advice.

Temporary Debt Protection

Temporary Debt Protection (TDP) (the renamed Declaration of Intent) provides a stay of enforcement for six months after 25 March 2020. It is still an act of bankruptcy. For example, if your client lodges a TDP on 01 September 2020 then the protection period runs for six months from that date.

During the six month protection period unsecured creditors (including the Sherrif) can't take enforcement action. But be careful, a TDP is still an 'act of bankruptcy'. This means a creditor could use the fact your client lodged a TDP as the basis for an application to the Court to force them into bankruptcy when the protection period expires. See specific information on TDPs.

Voluntary bankruptcy

  • Economic support payments are not claimable at all as either income or an asset
  • COVID-19 supplement payments may be claimable in bankruptcy (by the Trustee) if paid before bankruptcy and they remain in a person’s account after they become bankrupt
  • COVID-19 supplement payments are included in the Basic Income Threshold Amount and may trigger a requirement to make contributions if they exceed the threshold.




What do you do differently?


Forced bankruptcy

  • Do use the six months delay to resolve the debt claimed (if at all possible)
  • Negotiate repayment arrangements or reduced lump sum settlements as a full and final settlement
  • Prioritise debts that may be enforced after the six months’ delay
  • Do not assume that enforcement will not start up again as soon as the six months have passed or after an enforced delay has finished

Voluntary bankruptcy

Voluntary bankruptcy should generally not go ahead in the current circumstances. The reasons are:

  • It is very uncertain how long the impact of the pandemic will last and bankruptcy should be a last resort
  • People now cannot be forced into bankruptcy for at least six months
  • Repossession of assets is difficult because of the social distancing laws
  • The Government is providing continuing financial assistance, which may mean bankruptcy can be avoided
  • It may be (and should be) easier to negotiate reduced lump sum settlements or repayment arrangements

Temporary Debt Protection

This protection should now only be used very rarely because enforcement action should have slowed or stopped.

Part IX Debt Agreements

Part IX Debt Agreements should not be necessary (and are not recommended) and repayment arrangements should be made directly with creditors.




Resources


Summary of bankruptcy changes: AFSA

The Coronavirus Economic Response Package Omnibus Act 2020





Disclaimer: The information on this website is for financial counsellors only. It is general information only. Financial counsellors must still tailor advice to their client’s individual circumstances. 

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FCA sincerely thanks Kat Lane. Liz Minter and Melinda Rene for their outstanding work in putting this site together.