July 16, 2021

A Close Look At Personal Insolvency in Australia

A Close Look At Personal Insolvency in Australia

Taking on debt might be necessary if you require a large amount of money right away, whether it’s used for personal or business purposes. But what if something goes wrong and you can no longer manage your debt? According to the Australian Financial Security Authority (AFSA), personal insolvencies in Australia fell by 23.3% in the 2019-2020 financial year. This is a staggering statistic, given that it was widely anticipated that Australia was headed over a debt-cliff. Luckily for many employees and small business owners, Government-mandated debtor protections softened the blow. However, now that debtor protections are over, it is expected that the rate of insolvencies is likely to return to normal (albeit, a new normal). Many new insolvencies are related to small business debts, particularly in the construction and retail trade sectors. Thus, the importance of financial planning and debt management is evident more so now than ever. In the future, it is expected that the Australian economy will continue to recover, however, once interest rates rise (and they will rise eventually), we may be on the doorstep of yet another economic crisis. So, before you make the decision to take on a large debt, here’s a closer look at the history of Australian Personal Insolvency, prior to COVID.

Personal Insolvencies Increased for The First Time Since The GFC

The main contributors to Australia’s first rise in personal insolvencies since the global financial crisis (GFC) were the big resource states, Queensland and Western Australia, up 9.3% and 19.5% respectively. During this time, Victoria experienced a slight increase (up 1.8%,) while personal insolvencies in the Northern Territory went up by 15.3%.The rise in personal insolvencies was partially offset by decreases in New South Wales, the ACT, South Australia and Tasmania. But, overall, personal insolvencies increased in all states and territories in the June 2016 quarter, compared with the June 2015 quarter. The data released by AFSA included bankruptcies, which rose by 0.2% with the resource-heavy mining states, Queensland and Western Australia, predominantly accounting for the surge - 77.3% from Queensland and 22.7% from Western Australia. This was also the first increase since the spike in 2008-09, when the GFC reached its peak. Debt agreements, on the other hand, soared 11.4% to the highest level on record. The states and territories that were hit hardest included New South Wales, Queensland, the Northern Territory, Western Australia and South Australia. The difference this time in personal insolvency rises, was that the cash rate stayed at 2% for most of the previous financial year, compared with the high figure of 7.25% during the 2008 GFC. AFSA said that business-related personal insolvencies were mostly caused by economic conditions, whereas non-business related insolvencies were mainly driven by loss of income and excessive use of credit.

Personal insolvency in regional Australia

AFSA’s regional personal insolvency statistics for the June 2016 quarter revealed that there was an 11% increase in the number of debtors around the country who entered a personal insolvency, compared with the March 2016 quarter. While personal insolvency grew across all states and territories, the greater Darwin and greater Adelaide regions had small quarterly reductions in the number of debtors, down by -8.5% and -2.7% respectively. The Northern Territory as a whole had the highest number of debtors in the June 2016 quarter,  up 45.5%. The region with the second highest number was greater Hobart (32.8%), followed by greater Perth (22.1%) and the ACT (16.9%). Additionally, when compared with the March quarter, the number of business-related personal insolvencies in the June quarter increased by 20.6%. In greater Sydney, the suburbs of Bringelly-Green Valley, Canterbury and Penrith were mostly responsible for the 16.2% rise in personal insolvency debtors. When it came to business-related personal insolvency, Canterbury and Richmond-Windsor were the main contributors to the 24.7% increase in debtors. Debtors in Alice Springs mostly contributed to the personal insolvency growth in the Northern Territory, whereas the people in Palmerston helped Darwin decrease the number of personal insolvency cases. Here’s a quick rundown of the percentage change in personal insolvency in regional Australia during the June 2016 quarter, which is from the figures released by AFSA:

Personal insolvency

Greater Sydney: 16.2%

Rest of New South Wales: 13.4 %

Greater Melbourne: 0.3%

Rest of Victoria: 14.5%

Greater Brisbane: 10.7%

Rest of Queensland: 10.2%

Greater Adelaide: -2.7%

Rest of South Australia: 13.4%

Greater Perth: 22.1%

Rest of Western Australia: 9.4%

Greater Hobart: 32.8%

Rest of Tasmania: 13.6%

Greater Darwin: -8.5%

Rest of Northern Territory: 45.5%

The ACT: 16.9%

Business-related personal insolvency

Greater Sydney: 24.7%

Rest of New South Wales: 20.2%

Greater Melbourne: 11.7%

Rest of Victoria: 55.3%

Greater Brisbane: 17%

Rest of Queensland: 16.8%

Greater Adelaide: 1.9%

Rest of South Australia: 17.6%

Greater Perth: 33.9%

Rest of Western Australia: 53.8%

Rest of Tasmania: 18.2%

Rest of Northern Territory: -40%

The ACT: 33.3%

Western Australia led the country in personal insolvency increases in 2016

Western Australia recorded the biggest increase in personal and business-related insolvencies across the country from March to June in 2016, as a result of the mining downturn. AFSA data shows that the number of personal debtors in greater Perth went up by 22.1%, with the largest increase in Joondalup and the largest fall in South Perth. The suburbs of Rockingham, Wanneroo and Swan also experienced a sharp rise in personal insolvency activity, with 96, 74 and 61 debtors, respectively. In regional Western Australia, personal insolvencies grew 9.4%, with the biggest rise in Manjimup and the biggest fall in Mid-West. The following suburbs also had a high number of personal debtors: Bunbury (46), Pilbara (23) and Wheat Belt - North (20). Local business-related personal insolvencies in greater Perth rose 33.9%, with Wanneroo (23 debtors) and Rockingham (16 debtors) suffering the most, followed by Joondalup (15 debtors) and Stirling (15 debtors). In regional Western Australia, business insolvency activity went up by a whopping 53.8%. The suburbs hit hardest were Bunbury, Augusta - Margaret River - Busselton and Wheat Belt - North, with a total of 8 debtors each.

Proposing a Debt Agreement or Personal Insolvency Agreement as an Alternative to Bankruptcy

If you have unmanageable debt, you might want to consider proposing a debt agreement or personal insolvency agreement to your creditors. Whether you have personal or business interests to protect, Credit Counsellors Australia can help you make a proposal so that you can settle your debts over a period of time and in a manner that suits your ongoing financial capacity. To find out more, call us today on 1300 003 328.

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