While the usual hype about rates of personal insolvency in Australia might sell, a reported 0.2% rise in personal bankruptcies is hardly news, even if the first rise since the GFC.
What is significant is the continuing rise in the lower level Part IX debt agreement ‘market’, whose low income/asset/debt insolvents in fact pay dividends to creditors of close to 60%.
Yes, while bankruptcies and Part X agreements give a return of around 1c/$, debt agreements pay 60c/$.
How this is so, from that lower asset, income and debt community, needs some analysis. While repaying one’s creditors is admirable, despite being insolvent, there may be some untoward market and societal pressures that lead to this outcome.
One would be to avoid the ‘stigma’ of bankruptcy, and its 3 year restrictions.
But with the Australian government proposing to reduce this period to one year, in line with many comparable overseas countries, Australian debtors may decide that a ‘quickie’ bankruptcy, often with no real need to pay out the money required for a debt agreement, is preferable.
Any hype about what may be a dramatic change in the proportion of bankruptcies and debt agreements in Australia might then be justified.
To anticipate what may happen, we can look at both England (3 years to 1, in 2002), and Ireland (12 years to 3, then to 1, in 2015), among other jurisdictions.
One last point. While bankruptcy has an individual impact, in the perspective of Australian society only 0.00125 of 1 % of the population enter some form of personal insolvency arrangement each year. Financial distress per se is the larger issue.
Headlines and tweets about a 0.2% variation on a fraction of 1%, without analysis, should be seen as mere marketing.
More to come.