The Government’s proposed changes to bankruptcy laws, which would raise the minimum level of debt required before bankruptcy can be declared, are now expected to be blocked in the Senate.
The development comes after industry groups and major banks have called out against the changes, which would raise the minimum debt level required for bankruptcy status from $2,000 to $10,000.
It is understood both the Coalition and independent senator Nick Xenophon are set to vote against the proposals. Another proposal is also in question, which would increase the time in which a person who has flagged an intention to declare bankruptcy can seek financial advice, from seven to 28 days.
Xenophon says the increase to $10,000 was too high and would enable consumers to rack up large amounts of debt.
“I want to meet and talk with the Attorney-General next week, but I have a concern that the bankruptcy laws will make it difficult for small businesses, and worsen the culture of debt we have.”
A number of submissions have been sent to a Senate committee on the Bankruptcy Legislation Amendment Bill, which is set to release a report next week.
Additionally, both the Insolvency Practitioners Association of Australia and the Australian Bankers Association have opposed the move, saying the Government has no justification to raise the minimum level to $10,000.
Mark Robinson, president of the IPAA, says the new laws will hurt SMEs by restricting their ability to recover unpaid debts. While he says he cannot comment on the bill’s likelihood of success, he believes the current proposal isn’t good enough.
“What I can say, is that the Association’s view is that the threshold of $10,000 is much too high, and in our opinion, that threshold should be held at $5,000 and linked to CPI,” he says.
“We want to lower that amount and link that to inflation so that we don’t have to keep revisiting this topic all the time.”
The comments come after Robinson told SmartCompany the proposed changes would hurt SMEs and their ability to call in debts.
The Law Council of Australia has also reportedly supported a compromise, with an increase in the minimum level to $5000.
But NSW Consumer Credit Legal Centre principal solicitor Kat Lane told the committee the $5000 was too low, and that it would not stop certain lenders from using the bankruptcy system inappropriately.
“They have figured out that as long as you have an asset, you can [be threatened]… There is a big bank I know of, Citibank, that has the policy of making people bankrupt if they own a home and they have a credit card debt.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
