Law changes encourage declaring bankruptcy
Proposed changes to Australia's bankruptcy and insolvency laws will push Australians to declare bankruptcy, which means "the federal government is essentially incentivising people into insolvency", according to the Personal Insolvency Professionals Association (PIPA).
The new law would reduce the current default bankruptcy period from three years to 12 months.
PIPA director, Ben Paris, said this meant that the number of bankruptcies would skyrocket under the new regulations.
"However, Australia is experiencing a problem with ‘phoenixing', where businesses deliberately don't pay their debts and then file for bankruptcy, and these law changes would encourage this practice further," Paris said.
"Given the high number of Australians in financial stress, these changes will lead to an explosion in the number of consumer-related bankruptcies".
He added that under the new law ‘everyday working Australians' would face higher interest rates on credit cards and personal loans as the banks would try to recoup their losses.
Also the proposed changes, which are part of the National Innovation and Science Agenda, aimed to provide assistance for individuals to bounce back from a business collapse, however they might fail to achieve this goal with only 17 per cent of all bankruptcies in Australia being business-related.
"It's estimated that up to $3.19 billion is lost each year through ‘phoenixing', particularly in industries where subcontracting is common, such as construction. Sadly this means working Australians simply lose their wages as while employees' entitlements are protected, subcontractors' entitlements are not," he said.
AUTHOR
Oksana Patron
Recommended for you
Net cash flow on AMP’s platforms saw a substantial jump in the last quarter to $740 million, while its new digital advice offering boosted flows to superannuation and investment.
Insignia Financial has provided an update on the status of its private equity bidders as an initial six-week due diligence period comes to an end.
A judge has detailed how individuals lent as much as $1.1 million each to former financial adviser Anthony Del Vecchio, only learning when they contacted his employer that nothing had ever been invested.
Having rejected the possibility of an IPO, Mason Stevens’ CEO details why the wealth platform went down the PE route and how it intends to accelerate its growth ambitions in financial advice.
