We supported the intent of a MAP for consumers in severe financial distress. We can see the benefits of providing a once in a lifetime opportunity to consumers to have unmanageable debts extinguished and a fresh start. Our caveat being that such a procedure must provide the consumer with education on how to change their behaviour to avoid reaching the same position again.

Education

Without a MAP including education for the debtor on responsible financial management, a MAP will simply delay a debtor entering full bankruptcy, cause harm to more creditors and fracture trust in Australia’s credit system. For the MAP to provide a genuine fresh start for a regulated debtor, credit providers will need to trust that the debtor has changed behaviour and can manage debt. Equally, to retain trust in Australia’s credit system, people will need to trust that a debtor who is provided a fresh start quickly has also been provided the education to avoid repeating building debt they are unable to manage.

We recommended that a MAP require the debtor to undertake education to learn how to manage their finances responsibly.

Target cohort for a MAP

We consider that a MAP would be appropriate for consumers with unmanageable debt who have minimal to no assets which would be realisable in a bankruptcy. We cautioned against including debtors with debts that are business related as running a business has a wider impact on the community. A business may have had employees and contractors, and its creditors are likely to include other small businesses.

Asset threshold

We considered the proposed asset threshold of $10,000, excluding tools of trade and a vehicle, too high. Such a threshold is inconsistent with current bankruptcy thresholds and significantly higher than the comparison thresholds at Table 1 in the consultation paper. To be a streamlined process we support a fixed dollar amount rather than a subjective calculation by the trustee. We proposed that the asset threshold include tools of trade and a vehicle, as valued currently, and a small amount for other assets such as cash.

We recommended an asset threshold of $15,000 including tools of trade and a vehicle (subject to indexation).

Where a MAP fits

While further consultation is required on the details of how such a procedure would work, we considered it critical that, where any statement made by the debtor is found to be false, a MAP converts to bankruptcy. The key statement to assess eligibility being a persons total debt.

We recommend that, where total debt claimed by a debtor is found to be false, the MAP is immediately converted to a bankruptcy.

Conclusion

Our feedback was based on facilitating the comparison of personal insolvency options and avoiding unnecessary complexity. The key difference in eligibility for a MAP should be the debt threshold and lack of realisable assets. Other elements, such as maximum income and ability to repay, should align with existing elements in the personal insolvency regime. We look forward to further consultation on a MAP to determine the detail of how such a procedure could be implemented.