You have probably heard about the approaching changes to reduce the three year bankruptcy period to one year. While we do not know the exact date the changes are to be implemented, one thing for sure is that there are a lot of varying opinions surrounding the shorter term. Regardless of whether the shorter bankruptcy term is thought to be a positive change or not, we believe that the one year bankruptcy period will encourage more individuals to consider bankruptcy as an option to help relieve them of their insurmountable debts. Below is an overview of the Bankruptcy Amendment (Enterprise Incentive) Bill 2017 (“the Bill”) for individuals who are looking to enter into bankruptcy or who are currently bankrupt, and what the changes will mean for them.
What do the changes mean for individuals who are considering bankruptcy after the bill has been implemented?
Individuals will be discharged from bankruptcy one year after they file their Statement of Affairs. It also means that other periods associated with bankruptcy are reduced to one year, including:
- Disclosing their bankruptcy status when applying for credit;
- Seeking permission for overseas travel
- Obtaining certain licences;
- Entry into certain professions and membership bodies; and
- Ability to purchase asset
The Bill also implements other changes which should be considered: The period for payment of income liability remains unchanged. This means individuals will still have their income assessed for a total of three years, two of which will be after they have been discharged from bankruptcy.
- The period for payment of income liability remains unchanged. This means individuals will still have their income assessed for a total of three years, two of which will be after they have been discharged from bankruptcy.
- The lodgement of an objection to an individual’s discharge remains in place, meaning those who do not comply with directions of the trustee, or who fail to meet their obligations, may see their discharge date being extended.
- Individuals who are discharged from bankruptcy will still be required to assist in the Trustee even after discharge
What do the changes mean for individuals who are considering bankruptcy before the bell has been
Anyone who is considering going into bankruptcy at this point in time, could be made aware of the changes that are coming, which have been outlined above. They should be assured that the Bill will apply to undischarged bankrupts, thereby effectively reducing their bankruptcy term also to one year.
In other words, if an individual is bankrupt under the three year term period, they will have the benefit of the one year bankruptcy when the Bill has been implemented.
What does this mean for individuals who are already in bankruptcy?
Anyone who is considering going into bankruptcy at this point in time, could be made aware of the changes that are coming, which have been outlined above. They should be assured that the Bill will apply to undischarged bankrupts, thereby effectively reducing their bankruptcy term also to one year.
In other words, if an individual is bankrupt under the three year term period, they will have the benefit of the one year bankruptcy when the Bill has been implemented.
One year bankruptcy and beyond
I believe the changes brought by the Bill will mean that individuals with unmanageable debt will have less reasons to be concerned about the choice and impact of bankruptcy on their lives because of the reduced bankruptcy term. On the other hand, some believe the one year period is not long enough, and the shorter term may see individuals follow the same path which lead them into financial difficulty, resulting in a damaging cycle. However, at this point in time it is purely speculative, and only time will tell whether this is accurate. Overall, I believe the one year bankruptcy term will provide individuals a better chance to move on from the circumstances that ave rise to their financial difficulties, which usually has a positive effect on them personally and all other aspects of their lives.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.
