In a move designed to help workers fallen on hard times avoid bankruptcy, the Federal government has proposed changes to the existing laws while raising the penalties for abusing the system.

The changes, proposed by Attorney-General Robert McClelland, are aimed at preventing forced bankruptcy filed by lower income workers who have lost their employment and are having trouble with mortgages, credit card repayments, and other debts. The new rules raise the minimum debt under which a creditor can file for bankruptcy to $10,000 from $2,000 and increases the duration of time before the initiation of action to recover outstanding debts.

The longer time is intended to allow struggling debtors to contact support services and their debt holders, to find alternative solutions and arrange repayment schedules outside of the courts. This goal will also be assisted by shifting thresholds of debt, income, and assets, making it easier for battlers to enter such alternative arrangements. Statistics show that creditors tend to receive a much greater percentage of outstanding loans under arranged repayment schedules than through the bankruptcy courts—72 cents on the dollar as opposed to 1.6 cents.

At the same time, the maximum prison sentence that could be imposed against fraudulent debtors, those hiding assets or gaming the system, would be raised to five years from the current maximum of three years. Investigatory powers will also be strengthened.

The new regulations are considered necessary to stem surging bankruptcies among Australians. According to statistics recently released by the Insolvency and Trustee Service Australia, 6340 individuals and families succumbed to bankruptcy in the first quarter of 2009—a surge of 10.1% from the preceding quarter and 18.5% from the first quarter of 2008. With the Reserve Bank of Australia currently holding interest rates at historically low levels, such new measures should ease burdens on struggling debtors when rates begin to rise, which is anticipated to begin as early as November.

Source: News.com.au
Source:  itsa.gov.au
Source: abiworld