The changes aim to encourage greater use of debt agreements as an alternative to bankruptcy by middle-income earners. This is part of a drive to toughen up on debtors using voluntary bankruptcy as a means of avoiding debts rather then as a genuine last resort.

This will present a problem for anyone for whom the line between bankruptcy and solvency is not clear, and who may take the step of petitioning for bankruptcy earlier than absolutely necessary as a matter of prudence. It is now very important that petitioners clearly set out, or are at least able to articulate, how it is that they are unable, as opposed to merely unwilling, to pay.

In the ordinary course of events, a bankrupt is discharged from bankruptcy after three years. However, under the old law, bankrupts had been able to apply for early discharge after only 6 months. This has now been abolished.

The authorities now have greater powers to object to discharge of bankruptcy, even after the three year period, if a bankrupt has been uncooperative, and can now extend the period of bankruptcy to five or even eight years.

Reproduced from In Touch With The Law, published by the Law Society of NSW