TEMPORARY DEBT PROTECTION

Page last updated on 20/01/2020

More information

What has not changed?


  • Entering into Temporary Debt Protection is an act of bankruptcy. Creditors can use this act of bankruptcy to make the person bankrupt without needing to obtain a court judgment or issue a bankruptcy notice. see Bankruptcy
  • Once the person applies for Temporary Debt Protection, they cannot apply again for 12 months
  • Creditors can still conduct debt collection activities, including demanding repayment and starting fresh legal proceedings in court (and get a court judgment) and apply to make the debtor bankrupt.




Why a Temporary Debt Protection should be avoided


  • You always need to consider whether your client’s best option is bankruptcy (or not). If your client plans to avoid bankruptcy it is better to avoid committing any act of bankruptcy.
  • The protections are actually very narrow. The circumstances where a Temporary Debt Protection may be of assistance to your client is when the client is at risk of a garnishee (or is already being garnisheed) or is at risk of a Sheriff seizing goods.
  • Seizure of goods by the Sheriff are likely to be limited due to worker health and safety requirements (due to the pandemic) but do check with the court.
  • Before considering a Temporary Debt Protection do consider negotiating with the creditor to stop a garnishee or the seizure of assets. The creditor may be more flexible given the pandemic.
  • If the client is considering bankruptcy, there is usually no need for a formal Temporary Debt Protection. Asking for a stop on enforcement can buy the client the time needed to consider whether bankruptcy is the best option.
  • As bankruptcy is now an online process, there should be no delay while the bankruptcy forms are processed. (In the past, a declaration of intention to present a debtor’s intention was used urgently to prevent the seizure of goods or a garnishee of wages while an application for bankruptcy was processed)
  • If the client is solvent, the best option is to make affordable repayment arrangements.




What do the changes mean?


  • If your client obtained a TDP between 25 March 2020 and 31 December 2020 then they would have been given a protection period that lasted for six months.
  • For example, if your client lodged a TDP on 01 October 2020 then the protection period runs for 6 months from that date to 01 April 2021.
  • 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 Creditors Petition.
  • If they obtained a TDP between 25 March 2020 and 31 December 2020 then the bankruptcy threshold that applies is $20,000. This means that although they have committed an act of bankruptcy, creditors cannot proceed with a Bankruptcy Notice and/or Creditor’s Petition if the debts owed are below $20,000.




What do you do differently?


  • If your client obtained a TDP you should check when this happened and what protections and limitations were applicable at the time.
  • Seek legal advice immediately if you are unsure and / or if the TDP is due to expire or has expired and / or your client has been served with a Bankruptcy Notice or Creditor’s Petition.
  • If the client wants to avoid bankruptcy then you can assist them to:
    • Negotiate repayment arrangements or lump sum settlements
    • Try to reduce the debt(s) below the relevant threshold which is now $10,000.
  • If the client has insurmountable debts and is insolvent then voluntary bankruptcy may be their best option. You can assist them by advising them about bankruptcy as an option.




What is Temporary Debt Protection?


  • It stops unsecured creditors from taking enforcement action to recover money owed to them. This includes stopping the Sheriff from seizing goods, that are not otherwise protected, under a court order
  • It stops the court ordering the garnisheeing of wages or money from a person’s bank account
  • The name Temporary Debt Protection is a bit misleading as it offers very limited protection





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. 

Copyright © 2020 Financial Counselling Australia. All rights reserved.​

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