Decrease in bankruptcies corresponds with filing fee increase

There can be little doubt that the increase in the minimum threshold debt amount has contributed to the recent decline in the number of bankruptcies (the article mentions that in 2008-09, 9% of all bankruptcies related to debts between $2,000 and $5,000). However, another contributing factor which may have been overlooked (given that the recent amendments to the minimum debt amount did not commence until 11 August 2010) is that on 1 July 2010 amendments to the Federal Court of Australia Regulations 2004 (Cth) took effect. Those amendments substantially increased the court fees that are payable when a creditor’s petition is filed. The table below demonstrates the size of the increase:

While the bankruptcy process does not exist to assist creditors with the collection of debts, in practice it is often used exactly for that purpose, especially when a debtor has a genuine inability to pay all of his or her debts. In that context, the cost of bankruptcy proceedings is usually a factor considered by most creditors when deciding whether to use bankruptcy as an enforcement remedy. While filing fees are usually recoverable by the petitioning creditor from the bankrupt estate (provided that the estate has sufficient funds), the recent fees hike means that a creditor now needs to be even more careful when considering whether it is commercial to bankrupt a debtor over a relatively small debt.