Maintaining the balance in Australia’s insolvency system

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In my first few months as AFSA’s Chief Executive, I have met with stakeholders and staff to discuss the interrelationship between the personal insolvency system and Australia’s economy – learning how we work together to maintain system confidence and integrity.

One key theme is the importance of maintaining a balanced system. This means considering the needs of individuals with unmanageable debts alongside the need to provide recourse for those who are owed money. We also balance the needs of professionals working in the insolvency system, supporting efficiency and effectiveness in their work.

Australia’s bankruptcy laws are not designed to punish people facing unmanageable debt; they provide a pathway out of financial stress and offer an opportunity to reset. It’s important to remember that bankruptcies can be caused by a range of factors including job losses, business failures, changes in personal circumstances like family breakdown, illness or any number of other economic pressures.

Bankruptcy laws also give creditors a last resort option in the debt recovery process. Creditors can vary from large banks and utility providers to small businesses and individuals. Unpaid debt can have long-term effects on the health of the Australian economy, particularly cash flow and the financial viability of businesses. Bankruptcy laws balance the needs of all parties and our role is to maintain the balance.

Before formal insolvency action is taken, we ask creditors to be flexible when supporting people experiencing financial difficulty, ideally through manageable payment plans and hardship arrangements. The insolvency system is designed as a last resort when all other options have been exhausted.

Any equity in a property owned or part owned by a person who is bankrupt is one way their creditors can be repaid. When they become bankrupt, their trustee (a registered trustee or AFSA as the Official Trustee) becomes the owner of their property or share of their property. Bankrupt estates that involve property are regularly reviewed to determine if equity becomes available to pay creditors. This means a trustee can sell a property or share of a property to pay off debts up to 6 years after a bankruptcy has been discharged.

Recently Australia has seen significant increases in property values across the country which may result in an increase in available equity. This means a trustee may sell a property to pay any debts. In some cases, this property could be sold back to the person who is bankrupt after their bankruptcy has ended.

For those who are bankrupt, the best outcomes are often achieved by staying engaged in the process. We encourage everyone involved to maintain open communications and work together to find a reasonable solution.

The Official Trustee and all registered trustees work within the parameters of bankruptcy laws to balance the benefits of debt relief with the right for creditors to be paid the money they are owed. This often involves difficult decisions as bankruptcy laws specifically outline how trustees must discharge their duties.

We’re committed to working with all parties to maintain a balanced and fair approach and continue supporting the integrity of Australia’s personal insolvency system.