Trends in personal insolvency given to Senate committee

Representatives of the personal insolvency law administrator – AFSA – appeared on 24 January 2019 before the Economics References Committee examining credit and financial services targeted at those at risk of financial hardship.  AFSA presented useful and interesting data – numbers and trends – paraphrased as follows.

Bankruptcy and debt agreements

Bankruptcy is the most common form of personal insolvency … Most of those bankruptcies are initiated by debtors voluntarily, which they can do at any time simply by applying to AFSA. Only around eight to 10 per cent of bankruptcy are initiated by creditors taking action through the courts.

Debt agreements … can be a viable and appropriate option for many people to address their personal debt issues and they now account for around 47 per cent of all personal insolvency administrations. That’s a significant increase from 10 years ago, when they were less than a quarter.

Gender, age etc

Half of all debt agreement debtors in the 2017-18 year were male. The average age was 34. Their median income after tax was just over $36,000 and they owed just over $45,000.

In comparison, the average bankrupt is male, aged 44. Their median income was $39,000, with debts of around $65,000.

A short summary of that information was offered to be tabled.

Pay-day lending

The incidence of personal insolvency from payday or short-term lending in 2017-18, the last complete financial year, is reflected in this information.

Bankrupts owed a median of $1,200 to payday lenders. 1,891 bankrupt estates included debts to payday lenders, which is around 17 per cent of bankrupt estates.

Debt agreement debtors owed a median of $950 to payday lenders, and that occurred in around 40 per cent of debt agreements.

Complaints about debt agreement administrators – only 2 were justified

In the last six months of 2018, 20 complaints were received by AFSA about debt agreement administrators and, of those, two were found to be justified. This compares to 30 complaints with three justified for the 12 months for the 2017-18 year.

Marketing of debt agreements

The marketing and advertising of debt agreements continues to be of concern to AFSA. In 2017-18, 165 advertisements relating to debt agreements were subject to detailed assessment by AFSA, with correction, action and/or removal of content occurring in 79 instances.

Three registered debt agreement administrators and one adviser were referred by AFSA to ASIC for potential enforcement action for misleading and deceptive conduct in 2017-18. (The outcome is not explained).

Reasons for entering debt agreements

The top three reasons provided as the reasons for debt becoming difficult to manage for those debtors in debt agreements were,

  1. firstly, ‘I just didn’t focus on managing my money. It just happened. I’m not sure why’.
  2. Second was divorce or breakdown of a relationship.
  3. The third reason was retrenchment, unemployment or business failing.

Those were the same top three reasons for bankrupts entering bankruptcy, albeit in a different order, according to the survey that was undertaken.

Administrators were helpful

Significantly, through the survey for debt agreements, 74 per cent of debtors who undertook the survey felt their administrator was on their side trying to help the debtor make the best decision.

Useful but

This adds some useful perspectives on the personal insolvency regime; though it is a pity it needs to take a Senate inquiry for the information to be collated and disclosed.

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