A bill to reduce the default period of bankruptcy from three years to one year was introduced into Federal Parliament in October 2017 and is expected to come into effect sometime in 2018.
The key features of the so-called 1-Year Bankruptcy Bill.
Which are explained below, especially note the impact of the commencement of 1-year bankruptcy on ongoing administrations.
Why the need for change?
The Australian government is of the view that our current personal insolvency laws put too much focus on stigmatising and penalising failure.
As part of the National Innovation and Science Agenda, reducing the term of bankruptcy to 1-year aims to promote entrepreneurship and innovation and to reduce the stigma associated with bankruptcy.
The main amendment to the Bankruptcy Act 1966 (the Act) concerns section 149.
The bankrupt is discharged at the end of the period of 1 year from the date on which the bankrupt filed his or her statement of affairs’.
This also reduces other time periods associated with bankruptcy to one year, including:
The obligation to disclose one’s status as a bankrupt when applying for credit;
The requirement to seek permission to travel overseas; and
The ability to enter into certain professions or positions (e.g. company director).
The income contribution obligations of discharged bankrupts will extend for at least two years following discharge (five to eight years if the bankruptcy is extended due to non-compliance).
For ongoing bankruptcies, the advent of the 1 year discharge will mean the following:
All bankruptcies on foot at the commencement date, except those subject to a section 149B objection, will be discharged if one year has expired since the bankrupt filed a statement of affairs with the Official Receiver.’
Ongoing bankruptcies not covered by the above: Will discharge on the day after the first anniversary of the filing of the statement of affairs with the Official Receiver’.
When will 1-Year Bankruptcy apply?
The 1-year discharge will commence six months after the bill receives royal assent.