Now is the time to make positive reforms to bankruptcy laws say consumer advocates

law book, scale, and gavel

From Consumer Action Law Centre, Released 03/04/2023. Original here.

Consumer advocates around Australia have welcomed moves by Attorney-General Mark Dreyfus KC MP to reform bankruptcy laws.  

Last month, consumer advocates attended a Ministerial Roundtable on Personal Insolvency to discuss pressure points in the current system, critical reform areas and longer-term strategic challenges with the Attorney-General and stakeholders. 

“We strongly support the Attorney-General taking action on long-overdue bankruptcy reforms this year,” said Stephanie Tonkin, CEO of Consumer Action Law Centre. 

“With so many people struggling financially right now, it is more important than ever that our bankruptcy laws are fair and safe, especially for people experiencing vulnerability,” said Ms Tonkin.  

“We were pleased to see so many consumer representatives included in the Roundtable and that our voices, and the experiences of our clients, were heard loud and clear,” said Karen Cox, CEO of Financial Rights Legal Centre.  

“Consumer advocates look forward to working with the Attorney-General to progress these urgent reforms,” said Fiona Guthrie, CEO of Financial Counselling Australia. 

Consumer advocates support the key priorities identified during a productive Roundtable, recently published by the Attorney-General’s Department, including: 

Increasing the forced bankruptcy threshold from $10,000 to $50,000 

At present, the bar for bankruptcy is too low and open to abuse by unscrupulous creditors. The existing $10,000 threshold catches too many people who are often among the most vulnerable, such as family violence victims. 

“We are calling for the bankruptcy threshold to be raised to $50,000 to prevent people losing their homes over small debts,” said Fiona Guthrie, CEO of Financial Counselling Australia.  

“Increasing the bankruptcy threshold is a critical issue for financial counsellors and community lawyers. Bankruptcy is an important option for people struggling with debt. However, being forced into bankruptcy is a very distressing and punitive process that should only be available as a last resort for substantial debts,” said Ms Cox. ???  

Easier annulment for inappropriate bankruptcies           

Consumer advocates strongly support changes to make the personal insolvency system safer and fairer for family violence victim-survivors. 

“Too often we see victim-survivors railroaded into bankruptcy on debts arising from family violence – we need a new process to prevent and unwind these appalling outcomes,” said Carmel Franklin, CEO of Care Financial Counselling.  

Removing the lifetime public listing on the National Personal Insolvency Index (NPII)                                                        However, advocates say reform of the NPII should also be a key priority for 2023. In the United Kingdom, people are removed from its public register 3 months after discharge from bankruptcy. 

“It is time that Australia moved in line with other countries and abolished punitive lifetime listings on the National Personal Insolvency Index – a public register that lists a person’s name and address for life,” said Stephanie Tonkin, Consumer Action CEO.  

“Removing the lifetime listing will reduce the shame and stigma of bankruptcy and let people get on with their lives – this should be a priority reform for the Attorney-General” she said. 

Other issues on the agenda for reform 

Consumer advocates strongly support the following reform proposals: 

  • A fast-track 1-year bankruptcy option for straightforward bankruptcies to help people get on with their lives sooner 
  • Extending the timeframe to respond to a Bankruptcy Notice from 21 to 60 days, and prominently including the National Debt Helpline contact details, to prompt people facing bankruptcy to take earlier action and ensure they have sufficient time to obtain advice, reducing pressure on our services 
  • Consistent treatment of fines in bankruptcy across all states and territories 
  • For family violence victim-survivors, integrated reforms to make the personal insolvency system safe and fair 
  • Protecting compensation payments from distribution to creditors during bankruptcy, including total and permanent disability insurance payments and property bought with national redress scheme payments 
  • Amendments to gambling offences under the Act 
  • Updating the Act in light of AFCA’s establishment, so that its compensation awards against financial firms are protected in bankruptcy and the NPII can be amended following a determination; and 
  • An overall modernisation of the antiquated Bankruptcy Act 1966 to ensure it truly provides a ‘fresh start’ to debtors.  

Consumer advocates will work constructively with the Attorney-General, AFSA and other personal insolvency stakeholders to progress these critical reforms.