BANKRUPTCY

COVID-19 Changes: From 25 March 2020 to 31 December 2020 there were a number of temporary measures in place to protect people from being forced into bankruptcy. These measures ended on 1 January 2021.

Last Updated 20/01/2021

More information

What do the changes mean?


The level of protections your client now has will vary depending on when action was take.

Forced bankruptcy before 25 March 2020

  • Some bankruptcy notices and creditor’s petitions to force bankruptcy were started prior to 25 March 2020.

  • At that time, the minimum debt, or bankruptcy, threshold required for creditors to apply for a Bankruptcy Notice and Creditors Petition against a debtor was $5,000.

  • If a Bankruptcy Notice was served on the debtor before 25 March 2020 then the debtor only had 21 days to comply with it.

  • If the debtor has not paid the debt in full, then the process to force the debtor into bankruptcy can continue and these clients need to be referred for urgent legal advice.

Forced bankruptcy between 25 March 2020 and 31 December 2020

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 the remporarily increased threshold of $20,000. This means that:

  • The minimum debt, or bankruptcy, threshold that was required for creditors to apply for a Bankruptcy Notice against a debtor was $20,000.

  • If a Bankruptcy Notice was served on the debtor between 25 March 2020 and 31 December 2020 then the debtor will have 6 months to comply. For example, if the Bankruptcy Notice was issued on 01 September 2020 then the debtor has 6 months from that date to pay the debt in full.

  • If the debtor has not complied within the 6 months then the creditor can take further legal action, such as issuing a Creditor’s Petition. If the bankruptcy notice has expired the debtor should seek legal advice immediately.

  • There may be instances where a Bankruptcy Notice has been issued in error, not taking into account the threshold and other protections in place at the time. It is always important to check these details and seek legal advice immediately.

Forced bankruptcy on or after 1 January 2021

  • The minimum debt, or bankruptcy, threshold required for creditors to apply for a Bankruptcy Notice against a debtor has reduced from the temporary amount of $20,000 to the permanent amount of $10,000.

  • If a Bankruptcy Notice is served on the debtor on or after 1 January 2021 then the timeframe to comply with it has reverted to 21 days.

  • If the debtor does not comply within the 21 day notice period then the creditor can take further legal action at any time. If this is the case seek legal advice immediately.

Temporary Debt Protection

  • From 25 March 2020 to 31 December 2020 a debtor could apply for a Temporary Debt Protection (TDP) (the renamed Declaration of Intent) which provided a stay of enforcement for six months. For example, if your client lodged a TDP on 01 October 2020 then the protection period runs for six months from that date to 01 April 2021.

  • 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

  • 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 funless debts owed are more than $10,000

  • Federal and State Governments continue to provide financial assistance to those experiencing financial hardship, which may mean bankruptcy can be avoided.

  • It may be (and should be) easier to negotiate reduced lump sum settlements or repayment arrangements with creditors.

Temporary Debt Protection

If your client obtained a TDP between 25 March 2020 and 31 December 2020 then they had a six month protection period. You should check when their TDP expires or if it has expired and assist them with next steps as this is an act of bankruptcy and their creditors may be moving forward with a Creditor’s Petition. See specific information on TDPs.

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

Federal Register of Legislation: Bankruptcy Threshold Ammendment 2020

Attorney-General's Department: Bankruptcy

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.