Australians planning an overseas holiday may not be able to leave Australia if they have $10,000 or more in unpaid debt, a leading personal finance expert has said.
Commentator Effie Zahos noted that someone who declares bankruptcy because he or she cannot pay off a $10,000 debt could face serious consequences, especially if it involves travel.
“You are not allowed to travel abroad without permission, you may even have to surrender your passport,” she said in a video for the Australian Financial Security Authority.
Bankruptcy status lasts three years and one day and means that a person is permanently listed on the National Personal Insolvency Index.
Banks processing loan applications, landlords selecting tenants, and employers conducting job interviews have access to this online database.
“You may lose some of your assets and find it difficult to borrow money, renew your insurance or take out insurance,” Ms Zahos said.
You may also have to pay a deposit before connecting gas or electricity.
“Your income, employment or business could be affected. If your income goes over a certain point, some of it could go to the people you owe money to.”
A $10,000 debt that cannot be repaid can prevent someone from going on vacation to a country like Fiji.
The bankruptcy threshold in Australia has been $10,000 since January 2021, having been $5,000 since 2010.
But Attorney General Mark Dreyfus KC announced Monday that the threshold for involuntary bankruptcies would be doubled to $20,000, with that threshold indexed each year for inflation.
Stephanie Tonkin, director of the Consumer Action Law Centre, said the current $10,000 threshold was too low.
“By doubling the threshold to $20,000 and, more importantly, applying indexation, we can prevent many people from losing everything because of a small debt,” she said.
‘Bankruptcy should be an option for people who are genuinely insolvent, not a tool for debt collection. These reforms are a first step to prevent unnecessary harm.’
Under current law, a person who is entitled to $10,000 or more can file for bankruptcy through a petition filed by a creditor within six months of the debt becoming unpaid.
Individuals can also apply for voluntary bankruptcy, also known as a writ of attachment, so that arrangements can be made to repay creditors.
Personal finance commentator Effie Zahos said that someone who declares bankruptcy because he or she cannot pay off a $10,000 debt could face serious consequences
A bankrupt is also not entitled to be a member of the Federal Parliament.
The government is extending the period a debtor has to respond to a bankruptcy notice to 28 days, compared to the current 21 days to repay the debt or contest the case in court.
Public registration on the national index for personal insolvency law will also be reduced from permanent to seven years after the end of the bankruptcy period.
Proposals on the proposed legislation can be submitted until 29 July. The announced changes are the result of a forum in March 2023 between the government and insolvency experts.
The roundtable had considered shortening the bankruptcy period from three to one year, but this proposed change was not announced on Monday.