The Proposed Changes & What They Mean
All the way back in 1841, voluntary bankruptcy was first allowed in the United States. This early act and the Bankruptcy Act of 1898, known as the Nelson Act, established the modern concepts of debtor-creditor relations. Fast forward to 2018, to the latest Bankruptcy Legislation Amendment (Debt Agreement Reform) Bill 2018 which is the first comprehensive overhaul of Australia’s debt agreement system in a decade, with the most recent amendments coming into effect on the 1st of June 1996.
2018 is likely to see some significant changes made to both bankruptcy and debt agreement procedures. The Bankruptcy Amendment (Enterprise Incentives) Bill 2017 and the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018 were both considered by the Senate Standing Committee on Legal and Constitutional Affairs, which reported on both bills on 21 March 2018.
The Bankruptcy Act Law Reform will impact debtors considering insolvency options, such as bankruptcy and Part IX Debt Agreements.
The aim of the amendments? “To foster entrepreneurial behaviour and reduce the stigma associated with bankruptcy while maintaining the integrity of the regulatory and enforcements frameworks for the personal insolvency regime.”
So, what does this all actually mean? Let’s look into this a bit further and see how the proposed changes may impact you.
What are the key changes?
Bankruptcy
- Reduce the bankruptcy discharge period to 12 months
- The ability to travel overseas after the 12 month discharge
- The ability to become a Company Director after the 12 month discharge
- Income contributions will continue for 3 years
Debt Agreements
- Limit the maximum term of a Debt Agreement to 3 years
- Limit the maximum term extension to an additional 2 years
- Contributions will be capped to a % of the debtor’s income
- Maximum value of divisible assets to be doubled from current threshold
When will the changes come into play?
In May 2018 the proposed amendments bills are due to be presented to Parliament. During this time, approval must be given by both the Senate and House of Representatives, prior to being sent for Royal Assent. The bills will come into effect 6 months after Royal Assent.
What happens in the meantime?
Until passing of the legislation, the current laws and eligibility remain in effect.
So, what are the current laws?
Bankruptcy
|
|
Current legislation |
Proposed changes |
|
Discharge period |
3 years from date of bankruptcy, if no objections or extensions are applied by the trustee. |
The proposed changes are to reduce the discharge period to 12 months, if no objections or extensions are applied by the trustee. |
|
Travel restrictions |
Not permitted to travel overseas during the Bankruptcy period without prior permission from the trustee – currently 3 years. |
The proposal is to reduce this period to just 12 months. |
|
Ability to be a Company Director |
Not permitted be a Company Director for the Bankruptcy period – currently 3 years. |
The proposal is to reduce this to 12 months. |
|
Income Contributions |
After-tax income exceeding a set threshold, requires the debtor is to make income contributions of 50c/$1 for the bankruptcy period, currently 3 years. |
No change. Where required, income contributions will continue for a minimum of 2 years after discharge. |
Part IX Debt Agreements
|
|
Current legislation |
Proposed changes |
|
Maximum Term |
None specifically stated. Generally accepted that 5 years is the maximum most creditors will consider. |
The Proposal is to cap the term at a maximum of 3 years from the date the Debt Agreement commences. |
|
Variation Term |
No conditions. |
Proposal is that a maximum of an additional 2 years, can be added to the term of the Debt Agreement from the original start date. |
|
Income to Offer Amount Ratio |
None currently stipulated. |
The proposal is that Debt Agreement contributions, are capped at a set % of the debtor’s income. (% to be confirmed) |
|
Assets Threshold |
Divisible assets must not exceed a set threshold, currently $113,349.60* |
Proposed to double the current threshold* for divisible assets to $226,699.20 |
*Correct as at 20th March 2018
Debt agreements are an important and popular alternative to bankruptcy for individuals who are facing financial difficulties. This is clear when noting that the number of new debt agreements has almost doubled in the last decade, while bankruptcies have significantly reduced.
The government hopes that this legislation will make the debt agreement system fairer and more efficient for debtors and creditors alike and will protect people who are in a vulnerable financial position from financial exploitation.
What do you think of the proposed changes? Want to learn more? Contact Life After Debt® today!
At Life After Debt®, we can help you reduce unmanageable debt by offering affordable, practical debt solutions that are proven to relieve hardship.
That debt relief feeling
Click here to read the full Senate Report on the proposed amendments to the Bankruptcy Act 1966 (Cth)