Since these emergency measures ended on January 1, the bankruptcy threshold has been permanently amended to $10,000. This new threshold, $5,000 more than the original amount, is intended to provide individuals facing financial difficulties with continued relief.
In addition to this measure, further changes in bankruptcy are currently out for consultation.
If you or a client is facing bankruptcy, contact us today to arrange a confidential consultation and talk through the options available to you right now.
Reducing the default period of bankruptcy
The biggest change to bankruptcy the government is currently considering is reducing the existing bankruptcy exclusion period for three years to one year. This is another attempt to relax bankruptcy laws and help people and small businesses get back on their feet faster.
The suggestion for a reduced one-year bankruptcy period was first put forward on October 7, 2015, and later introduced into Parliament under the Bankruptcy Amendment (Enterprise Incentives) Bill 2017. The Bill lapsed when the 45th Parliament was discontinued on April 11, 2019, but is now being revisited.
One of the big objections raised previously was that a reduced exclusion period would be abused by reckless, repeat bankrupts. In response to this, the Productivity Commission suggested a reduced one-year exclusion period with the trustee and courts retaining the power to extend it up to eight years.
The Commission also proposed that the obligation of bankrupts to make excess contributions to trustees should remain at three years – and possibly longer if the period of bankruptcy is extended.
If the change goes through, which we believe it will, people and small businesses facing bankruptcy due to the coronavirus recession will be able to turn things around much faster, in much the same way that recent insolvency reforms have done for companies.
Alongside this change, the government is also considering changes to debt agreements, personal insolvency agreements, and offence provisions, based on consultation feedback.
Amendments to the Bankruptcy Regulations
Changes to the Bankruptcy Regulations 1996 are also currently being proposed to clarify provisions and to modernise references to ensure they align with the Bankruptcy Act.
Here’s a brief overview of the main amendments. For a complete list visit: Exposure Draft: Bankruptcy Regulations 2021.
- Judgment or order in foreign currency exchange rates (Section 12 and Bankruptcy Notice form) – Conversions of foreign currency must now be made using the Reserve Bank of Australia’s (RBA) exchange rates rather than the outdated ‘telegraphic rates of exchange’.
- Modernised list of exempt household property (Section 27) – This has been updated to ensure it fits with modern life, e.g. includes DVD player and personal computer.
- Transfers exempt from being void against the trustee (Section 31) – This makes an otherwise void transaction valid if, for example, the trustee would need to adopt unnecessarily expensive means to recover the transferred property.
- Superannuation contributions which count as income (Paragraph 34(2) (a) – A specific percentage amount is no longer given. Any contributions which ‘exceed the relevant superannuation guarantee charge percentage of the employees’ ordinary time earnings count as income.
- Determining the income of a ‘dependant’ (Section 36) – After 2020, a new income base is prescribed and only needs indexing annually. Previous years have been provided for.
- Official Receiver within two business days after termination takes effect.
- Information to be entered in the National Personal Insolvency Index (Sections 75-78) – Clarification on when information is to be entered.
- Taxable value of car fringe benefits statutory formula (Schedule 2, Item 3) – Differential rates have been replaced with a flat 20% rate.
It’s fair to say a lot is going on in bankruptcy law right now. If the reduction in the default period goes ahead with the appropriate checks and balances in place, as we think it will, it will be good news for individuals and entrepreneurs in strife who will be able to start again, sooner. ….