News

Charging struggling Australians a filing fee for bankruptcy is like trying to get blood from a stone. Consumer advocates and financial counselling agencies say the $120 fee, to be charged from 1 April, will be an unwelcome roadblock for people seeking a fresh start.

Financial Counselling Australia, Consumer Action Law Centre, Consumer Credit Legal Centre, and Footscray Community Legal Centre, say many of their clients spend years trying to meet their financial commitments and turn to bankruptcy as a last resort, but that the new fee will be a bridge too far for many.

‘People looking at bankruptcy are at the end of their tether. In our experience they want to pay their debts, but often they’re insurmountable and bankruptcy is the only way to get that huge weight off their shoulders and get a fresh start,’ said Fiona Guthrie, Executive Officer of Financial Counselling Australia.

‘This fee is ironic in the extreme. People will be too poor to go bankrupt, which is a perverse outcome. Financial counsellors see people who have literally just a gold coin in their pockets when they file for bankruptcy. If people can’t afford the fee, they will either remain trapped in debt or ask charities to pay the fee for them. All that will do is shift the cost burden to the community sector.

‘Who could begrudge someone a second chance? In our experience Australians considering bankrupting aren’t looking for an easy way out, they’re looking for a fresh start and a chance to become a productive part of our economy. Sadly, the new fee being levied by the Australian Financial Security Authority (AFSA) may mean that those that cannot afford the fee will be forced to live with debt indefinitely,’ said Ms Guthrie.

The new fee is being described as a cost recovery measure, but consumer advocates and financial counsellors say the Government should have consulted before announcing the fee in the 2013-14 Mid
Year Economic and Fiscal Outlook (MYEFO), released in December.

Gerard Brody, CEO of Consumer Action Law Centre, said putting $120 in the way of someone trying to get a fresh start is likely to be a drag on the economy. ‘Making someone continue to live with debt they don’t stand a chance of repaying isn’t fair, nor is it good for business or the economy.

‘The Government proposed the fee as part of MYEFO before speaking to the agencies who deal with struggling Australians on a day to day basis. And although we were subsequently asked for comment, the subtext was clear—the fee was going to be charged no matter what anyone thought.’

Kat Lane of Consumer Credit Legal Centre NSW said the situation in New South Wales was dire because people who can’t afford bankruptcy will face having personal possessions seized through court enforcement processes—possessions that would be protected in bankruptcy.

‘Imagine owing more money that you ever have a chance of paying off, and having to miss repayments just so you can afford to feed your family. That’s the situation facing many Australians, and in New South Wales there’s the added stress of worrying if the sheriff will come knocking to take away household goods,’ said Ms Lane

Bankruptcy statistics show that the majority of people who went bankrupt earned less than $30,000 in the year before they entered bankruptcy, and that unemployment is the primary cause of non-business related bankruptcy.[1]

It is important that bankruptcy remains accessible, for the integrity of our entire financial system. Discharging debts means that impoverished debtors get a fresh start, gives businesses certainty, and lets everyone move on.