The Bankruptcy Amendment (Enterprise Incentives) Bill currently before Parliament is set to reduce the period of bankruptcy from three years to one year only, a process designed to encourage entrepreneurs and stimulate economic growth.
Nicholls & Co expects the Bill to be passed in August and become law six months later. However, while the bankruptcy period will be shorter, anyone who goes through the process will still have to pay income contributions for three years if their income exceeds the threshold amount. It’s also worth noting that the asset vesting provisions will remain unchanged.
We believe the government is making these changes to preserve the bankruptcy process but also to allow the bankrupt person to pick up their life faster, because they will spend less time on the sidelines.
This proposed shorter period of bankruptcy will offer several benefits for the person in bankruptcy including a shorter prohibition time for:
- Being a company director,
- Trading a business name, and
- Being a trustee of a self-managed super fund.
The reduction of the bankruptcy period also means an easing of other restrictions, such as:
- Only needing to disclose bankruptcy for one year if applying for credit or drawing a cheque for more than $5703.
- Inheritance and other windfall gains can only be captured for one year by the bankrupt estate.
- A shorter period of inconvenience in needing the Trustee’s approval for travel.
However, not all stars have aligned. The government is not changing the Privacy Act of 1988 and anyone who has been declared bankrupt will have that fact on their credit record for five years from the date of bankruptcy.
We conclude this means that while the government wants to encourage business activity, it also believes a person’s bankruptcy history should be available to anyone who is dealing with a discharged bankrupt.
Once the shorter period becomes law, we expect more people will file for bankruptcy and there will be fewer Personal Insolvency Agreements (PIA) and Part 4 schemes.
If you have any questions regarding bankruptcy, call Nicholls & Co on 1300 060 122 or email email@example.com.