Australians planning an overseas holiday may find they cannot leave Australia if they have unpaid debts of $10,000 or more, a leading personal finance expert says.
Commentator Effie Zahos noted that someone who files for bankruptcy due to their inability to pay off a $10,000 debt could face serious consequences, particularly when it comes to travel.
“You won’t be able to travel overseas without permission, you may even have to surrender your passport,” he said in a video for the Australian Financial Security Authority.
Bankruptcy status lasts for three years and one day, and means that someone is permanently listed on the national personal insolvency index.
Banks considering loan applications, landlords selecting tenants, and employers conducting job interviews all have access to this online database.
“You could lose some of your assets and find it difficult to borrow, renew or obtain insurance,” Zahos said.
‘You may also have to pay a deposit before connecting the gas or electricity.
‘Your income, job or business could be affected, and if your income goes above a certain point, some of it could go to the people you owe money to.’
A $10,000 debt that cannot be paid can potentially prevent someone from going on holiday abroad to somewhere like Fiji.
Australia’s bankruptcy threshold has remained at $10,000 since January 2021, after being $5,000 since 2010.
But Kansas City Attorney General Mark Dreyfus announced Monday that the threshold for involuntary bankruptcies will be doubled to $20,000, indexed each year for inflation.
Consumer Action Law Centre chief executive Stephanie Tonkin said the current $10,000 threshold was too low.
“Doubling the threshold to $20,000 and, more importantly, indexation, will save a lot of people from losing everything because of a small debt,” he said.
‘Bankruptcy should be an option for people who are genuinely insolvent, not a debt collection tool, and these reforms are a first step in preventing unnecessary harm.’
Under current law, if someone is owed $10,000 or more, they can get a court order to have the debtor file for bankruptcy within six months of the debt becoming unpaid as part of a petition by the creditor.
People can also apply to be declared bankrupt voluntarily, known as a sequestration order, so that an agreement can be reached to pay creditors.
Personal finance commentator Effie Zahos said someone who filed for bankruptcy due to their inability to pay off a $10,000 debt could face serious consequences.
A bankrupt person is also not eligible to be a member of the Federal Parliament.
The government is increasing the period a debtor has to respond to a bankruptcy notice to 28 days, up from the current 21 days to pay the debt or face a court challenge.
A person’s public registration on the national personal insolvency index will also be reduced to seven years after the bankruptcy period has expired, rather than remaining there permanently.
Bill submissions can be made until July 29, and changes will be announced following a forum in March 2023 between the government and insolvency experts.
The roundtable had considered reducing the bankruptcy period to one year, instead of three, but this proposed change was not announced Monday.
