Following various rounds of consultation, the Attorney-General has proposed four changes to the personal insolvency system with the aim of improving outcomes for both the debtor and their creditors.

Bankruptcy threshold

We do not support an increase in the bankruptcy threshold from $10,000 to $20,000.

The threshold refers to a single debt, not the total debt accrued by a debtor. Ignoring a single debt until it reaches $20,000, at which point a creditor can commence recovery through the courts, increases the financial harm to both the debtor and their creditors.

We consider an increase in the threshold will result in greater harm rather than improve outcomes.

Period to respond to bankruptcy notices

We do not support an increase to the period of 21 days to respond to a notice.

We reiterated our view that creditors will have sought recovery of their money through all other available channels prior to commencing recovery through the courts. By the time a bankruptcy notice is issued, the debtor will have had multiple opportunities to work with a creditor to reach an agreement on payment of a debt.

We consider an increase in this period would result in greater harm rather than improve outcomes.

Reducing the permanent record on the NPII

We strongly support reducing the public record of bankruptcy on the National Personal Insolvency Index (NPII) from life to seven years from discharge.

We have recommended this change in each of our previous submissions as we consider the public record a key element in the stigma surrounding bankruptcy. While bankruptcy should not be taken lightly, it happens at a point in time and should not be held on public record for the rest of a person's life.

While the public record will be removed, access to the records will be available to other government bodies. We sought such access to also be available to registered liquidators and trustees in bankruptcy where required to complete an investigation.

We consider reducing the public record of bankruptcy to seven years from discharge will improve outcomes for debtors.

Debt agreements

We strongly support the removal from the Bankruptcy Act of the clauses that make entering a debt agreement an act of bankruptcy.

Debt agreements seek to benefit both the debtor and their creditors. The debtor, to repay debts at a level they can afford and for creditors, to recover a significant portion, if not all, of monies due within a reasonable time frame.

We consider this will improve outcomes for both debtors and their creditors as it will encourage the appropriate use of debt agreements and prevent harm arising from, and the stigma associated with, being bankrupt.

Conclusion

We welcome the reduction of the public record of bankruptcy and for debt agreements to be recognised as an act of recovery, not insolvency.

We consider these two changes will significantly improve outcomes for debtors and their creditors and begin to reduce the stigma associated with bankruptcy, a point in time financial status not a lifetime status.

We thank our members for their continued support in contributing to our submissions seeking changes to Australia’s insolvency regime to benefit both the debtor and their creditors.