Government considers making bankruptcy laws more lenient

The Federal Government is considering changes to personal bankruptcy laws in an effort to reduce the large amount of individuals declaring insolvency as a result of the global financial crisis.

Attorney-General Robert McClelland said yesterday the Government is considering “the changing nature of bankruptcies”. Over 32,000 personal insolvencies were recorded during the 2007-08 year, with 27,009 recorded for the first nine months of the current financial year.

The changes would reduce the maximum period of first-time bankruptcy from three years to just one, and raise the minimum debt level at which a creditor can force a debtor into bankruptcy from $2,000 to $10,000.

Mark Robinson, president of the Insolvency Practitioners Association of Australia, says the changes are an attempt to streamline the thousands of extra cases the department is receiving.

“They’re trying to work out how to process an increasing number of bankrupts with the same resources. The changes are more about streamlining the process and quickly dealing with the people who have gone bankrupt through misfortune more than misadventure.

“The primary amendment that will have an impact is that the first time bankruptcy will be only 12 months. The department will have to investigate insolvencies in shorter amounts of time than the previous three years.”

The Government currently administers most personal insolvencies through its Insolvency and Trustee Service Australia department.

Jim Downey, principal of insolvency firm JP Downey & Co., says the new changes will help the Government, but may upset creditors that rely on threatening debtors with bankruptcy.

“I think that the credit collection fraternity would be disappointed to lose one of their tools of trade to force people who owe amounts more than $2,000 into bankruptcy,” he says.

“But it would certainly make it cheaper for the Government, because they would probably have a third of the number to administer at any one time. If you’ve raised the threshold from $2,000 to $10,000 that would reduce the number of debtors that can be forced into bankruptcy.”