COVID -19: Bankruptcy

This is a guide to the changes to bankruptcy the Australian government introduced because of the pandemic. It also includes information on what to do if you think you may need to go bankrupt.

Read an overview on bankruptcy and how it works here.

Information on this page:
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COVID-19 changes to bankruptcy

From 25 March 2020 to 31 December 2020 there were a number of temporary measures in place to protect people from being forced into bankruptcy.  During this time the bankruptcy threshold for a creditor’s petition (the first step in forced bankruptcy) was temporarily lifted from $5,000 to $20,000.  You could also apply for a Temporary Debt Protection (previously called Declaration of Intent) which lasted 6-months instead of 21-days.

On 1 January 2021 a new permanent threshold (for forced bankruptcy) of $10,000 came into effect.  This means you cannot be issued with a Bankruptcy Notice or forced into bankruptcy by your creditors if the debt owed is less than $10,000.

The temporary changes to bankruptcy laws that were in place from 25 March 2020 to 31 December 2020, and the permanent change to the bankruptcy threshold on 1 January 2021, mean that the level of protections you now have will vary depending on when action was taken by creditors.

Level of protections

The level of protections you have now will vary depending on when action was taken by creditors.

If action was taken before 25 March 2020

  • The minimum debt, or bankruptcy, threshold required for creditors to apply for a Bankruptcy Notice against a debtor was $5,000.
  • If a Bankruptcy Notice was served on you before 25 March 2020 then you will still only have 21 days to comply with it. If you have not complied within the 21 days then the creditor can take further action at any time. If this is the case seek legal advice immediately.
  • A Temporary Debt Protection (previously called Declaration of Intent) provided 21 days protection. During the 21 days unsecured creditors (including sheriffs) can’t take enforcement action to recover money you owe them.

If action was taken between 25 March and 31 December 2020

  • The minimum debt, or bankruptcy, threshold required for creditors to apply for a Bankruptcy Notice against a debtor was temporarily increased to $20,000.
  • If a Bankruptcy Notice was served on you between 25 March 2020 and 31 December 2020 then you will have 6 months to comply with it. For example, if you were issued with a Bankruptcy Notice on 01 September 2020 then you have 6 months from that date to comply. If you have not complied within the 6 months then the creditor can take further legal action at any time. If this is the case seek legal advice immediately.
  • You could apply for Temporary Debt Protection (TDP) lasted six months. For example, if you lodged a TDP on 01 October 2020 then the protection period runs for 6 months from that date to 01 April 2021.  But be careful, as a TDP is an ‘act of bankruptcy’. This means a creditor could use the fact you have lodged a TDP as the basis for an application to the court to make you bankrupt. See here for more information.

If action was taken from 1 January 2021

  • The minimum debt, or bankruptcy, threshold required for creditors to apply for a Bankruptcy Notice against a debtor has reduced from the temporary amount of $20,000 to the permanent amount of $10,000.
  • If a Bankruptcy Notice is served on you on or after 1 January 2021 then the timeframe to comply with it has reverted to 21 days. If you do not comply within the 21 days then the creditor can take further legal action at any time. If this is the case seek legal advice immediately.
  • The period for Temporary Debt Protection for debtors has reverted to 21 days.

Before you do anything

Bankruptcy is a big decision and is a last resort for tackling your financial difficulty. If you own a home or any other real estate you need to be very careful before considering bankruptcy. The bankruptcy trustee can take and sell your home and other significant assets in bankruptcy.

You should always speak to a free financial counsellor before considering bankruptcy or any formal alternative to bankruptcy (Part IX Debt Agreement or Temporary Debt Protection). The financial counsellor will advise you on your options.

Take the time to consider the consequences as they relate to your personal circumstances and speak to a free financial counsellor first.  See Bankruptcy for more information.

Early access to super

Super is usually protected if you go bankrupt.

If you seek early access to your super but still need to go bankrupt then you may have used money that you didn’t need to. Avoid early access to super if you believe you may need to go bankrupt.

Some options to consider to avoid bankruptcy

01

Make an affordable repayment arrangement

 

You can negotiate affordable repayment arrangements with your creditors. Remember, not all debts are created equal. Some debts are a priority. For a step by step guide see Prioritise your debts.

Your priority debts or payments are:

  • food
  • rent or mortgage payments (you must have somewhere to live)
  • council rates or body corporate fees
  • loan payments for a car that is essential for getting to work, ferrying around children, shopping for essential goods or attending medical appointments
  • gas/electricity/water bills

02

Reduced lump sum settlements

If you have any savings or can put together a lump sum, however small it may be, consider offering a creditor a reduced sum as a full and final settlement for an unsecured debt.

03

Ask your creditor about not charging fees, and reducing or stopping interest

Now is the time to ask your creditors for help so you can pay off your debts and avoid bankruptcy. Remember, your creditor would rather be paid something than get nothing.

04

Speak to one of our financial counsellors

  • If you’re feeling overwhelmed and need some help to deal with your financial hardship, you can speak with one of our financial counsellors.Financial counsellors aren’t judgmental about your circumstances – they’re here to offer you free, confidential and independent advice and assistance.

    To speak to a financial counsellor you can:

    • Call the National Debt Helpline on 1800 007 007 – open Weekdays from 9:30 am to 4:30 pm.
    • Use our live chat service by clicking the chat icon in the bottom right corner of your screen. Live chat is available 9:00am-8.00pm weekdays. If you send a message outside these hours a financial counsellor will get back to you.
    • Make an appointment to see a financial counsellor in your local area – Find a local Financial Counsellor.

    If you are a small business owner/sole trader, call the Small Business Debt Helpline on 1800 413 828 to speak to a specialist small business financial counsellor.  More information is also available at sbdh.org.au.