Read an overview on bankruptcy and how it works here.
Information on this page:
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Four changes you need to know about
- 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. These measures ended 1 January 2021.
- The bankruptcy threshold had been temporarily lifted from $5,000 to $20,000 on 24 March 2020. However, a new permanent threshold of $10,000 came into effect 1 January 2021. You now cannot be issued with a Bankruptcy Notice or forced into bankruptcy by your creditors if the debt owed is less than $10,000.
- If you are issued with a Bankruptcy Notice (for a debt of more than $10,000) on or after 1 January 2021 then the time you have to respond to the notice will be 21 days.
- You can apply for Temporary Debt Protection on or after 1 January 2021 the protection period is 21 days. This stops creditors taking enforcement action. (This was previously called a Declaration of Intent to Present a Debtor’s Petition.)
What do the changes mean?
The level of protections you have now will vary depending on when action was taken.
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
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:
- 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
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.
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.
Speak to one of our financial counsellors
If your problem still hasn’t been solved, or you’re feeling overwhelmed, call us on 1800 007 007 to speak with one of our financial counsellors.