Attorney-General Mark Dreyfus
The government is considering increasing the bankruptcy threshold and increasing the period for a debtor to respond to a bankruptcy notice, as part of a set of proposals for personal insolvency reform.
Attorney-General Mark Dreyfus has issued a discussion paper outlining a set of reform proposals. While the bankruptcy threshold and response time are flagged as “key issues”, the government is also considering options for a shorter discharge period from bankruptcy and easier annulment for inappropriate bankruptcies.
And it is looking at measures to mitigate harms caused by unlicensed or untrustworthy advisers.
Bankruptcy threshold. The proposed increase in the bankruptcy threshold is from A$10,000 to $20,000.
Under COVID measures that applied until the end of 2020, the bankruptcy threshold was increased from $5000 to $$20,000, and then in January 2021 the threshold was changed permanently to $10,000.
Reasons for raising the threshold were to reflect the changing value of money, the increase in the level of personal debt and to discourage bankruptcy action over small debts.
The discussion paper says: “The department has considered the same economic factors with respect to raising the bankruptcy threshold to $20,000.”
Of the 5995 bankruptcies in the 2021/22 financial year, 11.8 per cent had debts greater than $10,000 but less than $20,000, while 18.1 per cent had debts of less than $20,000.
The discussion paper says: “Based on this data, should the bankruptcy threshold increase to $20,000, 81.9 per cent of 2021/22 bankruptcies would still meet the new threshold.”
Response time. The proposed increase to the time a debtor has to respond to a bankruptcy notice is from 21 to 28 days.
The discussion paper says the proposal is informed by civil procedure rules in federal and state law that usually allow for 28 days in which to respond to a statement of claim.
Some stakeholders called for an increase to 60 days, as was the case during COVID, but the department’s view was that this did not strike the right balance between the interests of debtors and creditors.