Permanent changes to the personal bankruptcy threshold – Insolvency / Bankruptcy / Restructuring

Australia: Permanent changes to the personal bankruptcy threshold

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On December 18, 2020, the Commonwealth Government issued a press release regarding an increase in the minimum dollar threshold for issuing a bankruptcy notice.

As we wrote previously, the Commonwealth government has increased the debt threshold that a creditor can issue a bankruptcy notice from $ 5,000 to $ 20,000 in response to the COVID-19 pandemic.

These “safeguards” were to end on January 1, 2021 and the threshold amount at which a bankruptcy notice could be issued is expected to return to $ 5,000.

However, the Commonwealth government has decided that the threshold amount at which a creditor can issue a bankruptcy notice will now be “permanently” increased to $ 10,000 effective January 1, 2021.

The above mentioned in the press release can be found here.

The decision to increase the threshold amount was declared in recognition of the “change in the value of money and changes in debt levels” since the last increase in the amount in 2010.

Does this mean that the Commonwealth government considers Australia to have “experienced” 50% real inflation in ten years, so our money is now worth half of its value in 2010.

Or, is it focused on allowing debtors to take on more debt before they are considered past due.

Conclusion

We are not sure what the practical effect of increasing the legal minimum will be other than effectively allowing debtors to avoid the ultimate penalty. What will happen when, say, 10 million people owe the ATO $ 9,999?

The obstacle to collection in a bankruptcy case is that debtors, by the very nature of being bankrupt, do not have or do not have enough assets to meet their debts. Now, “bad debtors” up to $ 10,000 will be allowed to continue to weigh on the company without warning.

It is imperative that creditors ensure that they are properly protected, by good business terms, because debts under $ 10,000 are effectively irrecoverable without adequate collateral in place.

We can help creditors protect their position in this regard by allowing them to obtain security from people other than the debtor.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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