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.

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"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.

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