09 April 2014
Federal Government begins charging for bankruptcy applications
From April 1st, it will cost $120 to file for bankruptcy, and another $150 to travel overseas while you're bankrupt.
The Federal Government estimates the new fees will deliver it an extra $25 million over the next four years.
Consumer law groups say the changes will deepen the financial woes of people who can't afford to pay their debts.
The Federal Government's plan to increase personal insolvency charges was announced in the Mid-Year Economic and Fiscal Outlook in December, and the details of the fees were released on at the end of February.
Karen Cox from Sydney's Consumer Credit Legal Centre says she received an email confirming the changes were going ahead late on Friday.
KAREN COX: We certainly found out about it earlier this year. We put together a joint submission with the Lismore and District Financial Counselling opposing the change and those submissions only closed a few weeks ago, and we've heard nothing back in response to the submission, and certainly there was nothing in the announcement saying that it was going ahead about the outcome of the consultation or any of the views that have been expressed.
PAT MCGRATH: But this has been the start date - April 1 was made clear at the end of February. We knew this was going to happen, didn't we?
KAREN COX: We were told that, yes it would start on 1 April, at the end of February, and then they asked for submissions.
PAT MCGRATH: Karen Cox says her service receives hundreds of calls every year from people contemplating bankruptcy.
KAREN COX: People only do this when they're at the end of their tether.
The majority of people who apply for bankruptcy have incomes of under $30,000. Certainly callers to this service, 60 per cent or more of people who call up about bankruptcy, have incomes of less than $26,000, and in most cases they're unemployed or ill or caring for someone in circumstances where they are not going to be able to get employment in the foreseeable future.
PAT MCGRATH: Along with the new fees, the Government has also increased the levy on money recovered from people who have entered bankruptcy.
That's known as the realisation charge and has increased from 4.7 per cent to 6 per cent.
The changes will generate $3.5 million in revenue for the Government in the final few months of this financial year and $7 million next financial year.
Fiona Guthrie heads Financial Counsellors Australia, the peak body for non-profit financial counsellors.
She says the changes have been poorly handled.
FIONA GUTHRIE: What's happened here is that the folk in the finance department have not understood the policy implications of this.
It has not been thought through; there's been no policy analysis. The consultation process was a sham.
PAT MCGRATH: The Finance Minister and Acting Assistant Treasurer Mathias Cormann has not responded to our questions about the changes and the consultation process.
Gerard Brody from the Consumer Action Law Centre believes the changes will discourage people from seeking bankruptcy protection.
GERARD BRODY: Bankruptcy lasts for three years as a general rule. It will be listed on an individual's credit report for five years and, in fact, it will be listed on the National Personal Insolvency register forever.
So it is a black mark that stands against a person's name and there are serious repercussions.
People don't choose bankruptcy lightly, but where it's the most appropriate choice because their situation is so difficult, then it should be as accessible as possible.
PAT MCGRATH: But even if somebody considering filing for bankruptcy doesn't have enough cash to cover the application fee there are other payment methods available.
GERARD BRODY: They are accepting credit card payments for paying the debtors filing fee. That's really strange. It may end up that someone uses their credit card to pay their fee, only to go bankrupt on that debt.
PAT MCGRATH: So the payment is never actually made by the person who's applying?
GERARD BRODY: Well, it'll be made, the result will be that the bank or the lender that gave them that card will be left with an unrecoverable debt.