COVID 19 changes: From 25 March 2020 to 31 December 2020 there were a number of temporary measures in place including an increase to a term of 6 months for Temporary Debt Protections. These measure ended on 1 January 2021. See COVID-19 Bankruptcy.
Before you apply for Temporary Debt Protection
Always speak to a financial counsellor before you apply for Temporary Debt Protection. It should only be used as a last resort. There may be better options for you to consider in your circumstances.
What is Temporary Debt Protection?
If you file for Temporary Debt Protection, this means that for 21 days, unsecured creditors cannot take enforcement action ordered by a court to recover money you owe them. It provides temporary (and limited) protection from enforcement for 21 days from certain court enforcement. The protection stops:
- the Sheriff seizing your goods and/or
- the court garnisheeing (taking) part of your wages or money that is in your account.
It is an act of bankruptcy. An act of bankruptcy is serious because a creditor can use it to force you into bankruptcy without the need to issue a bankruptcy notice.
Why would I lodge a Temporary Debt Protection?
Generally, you would only consider lodging a Temporary Debt Protection if:
- You have tried to negotiate a repayment arrangement to stop court enforcement and the creditor has refused; and
- You have spoken to a financial counsellor to discuss your options and Temporary Debt Protection is a good option for you; and
- a creditor is about to garnishee your wage/ savings account or a sheriff is about to seize your goods.
If you believe it is very likely you are going to go bankrupt (after talking to a financial counsellor) and you just need to stop the Sheriff and/or a garnishee while you get organised then Temporary Debt Protection is a reasonable option.
Remember, you can also go bankrupt to stop the garnishee of wages/savings or seizure of goods. There is no need to use a Temporary Debt Protection if you will be applying for bankruptcy immediately.
It is not recommended you use a Temporary Debt Protection to get time to think about what to do. This is because the Temporary Debt Protection does not stop:
- Creditors and debt collectors calling you
- Creditors taking court action (commencing legal proceedings and getting a court judgment)
- Creditors forcing you into bankruptcy
It is not recommended that you use Temporary Debt Protection if you definitely want to avoid bankruptcy.
What happens when I lodge Temporary Debt Protection?
- You have committed an act of bankruptcy
- Your creditors are notified by the Australian Financial Security Authority of the 21-day protection period
- Creditors are unable to garnishee your wage or seize property to repay an unsecured debt
- After the 21 days has passed, you are not automatically bankrupt. Creditors can then resume court enforcement action such as garnisheeing wages or seizing assets.