The Attorney-General’s Department has published a discussion paper on possible changes to the personal insolvency system including reducing the default period of bankruptcy to one year.
The current default period of bankruptcy before a bankrupt is discharged from bankruptcy is three years from the date on which the bankrupt filed his or her statement of affairs.
The Bankruptcy Amendment (Enterprise Incentives) Bill 2017 which lapsed as a result of the 2019 election reduced the default bankruptcy period from three years to one year.
The objective of reducing the automatic discharge period to one year is intended to reduce stigma, encourage entrepreneurs to re-engage in business sooner, and encourage people, previously deterred by punitive bankruptcy laws, to pursue their own business ventures.
The Enterprise Incentives Bill also proposed to amend the Bankruptcy Act to:
• reduce the default period of bankruptcy from three years to one year;
• reduce other time periods associated with bankruptcy to one year including for:
disclosing bankrupt status when applying for credit
seeking permission for overseas travel, and
the attainment of certain licences and entering into certain professions.
• extend income contribution obligations for discharged bankrupts for a minimum period of two years following discharge or, in the event that a bankruptcy is extended due to non-compliance, to five to eight years.
In response to concerns that the default period of one year would be abused by rogue, reckless, and repeat bankrupts it was proposed to strengthen the objection to discharge regime.
The department has also considered the following refinements to the Enterprise Incentives Bill:
• implementation of an early discharge application process
• criteria that would exclude a bankrupt from the default period of one year, and
• strengthened offence provisions.
The paper also seeks submissions on changes to debt agreements, personal insolvency agreements, and offence provisions.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.