Personal insolvencies are tipped to rise to pre-COVID levels over the next two years, according to the latest insights by the Australian Financial Security Authority (AFSA).
The State of the Personal Insolvency System report said there was a total 9,545 personal insolvencies in the 2021-22 financial year – that’s significantly down from the 10-year average of 25,300 insolvencies annually.
Factors such as debt agreement reforms and the economic response to the COVID-19 pandemic stimulus have contributed to falling insolvencies since the last peak in 2017-18. And now, it’s the rising cost of living and wider economic uncertainty which are expected to drive insolvency numbers from current historic lows.
“Challenges like rising interest rates and high inflation are putting many people under significant financial stress,” AFSA CEO Tim Beresford said. “AFSA supports the flow of Australia’s $3.5 trillion credit system by allowing people in financial distress to get a fresh start, while providing a remedy for those who are owed money.”
During 2021-22, most people who entered personal insolvency had low levels of debt, with 52.7% of insolvencies involving less than $50,000 in liabilities and just over a quarter of insolvencies had debts totalling more than $100,000.
The personal insolvency system accounted for just under $18bn in liabilities in total, with the Australian Taxation Office and the Big Four banks the major creditors in personal insolvencies, owed more than $6.1bn dollars in the last financial year. This included $3.7bn in business-related personal debt and $2.4bn in non-business-related personal debt.
Beresford said a range of challenges, opportunities, and ideas would likely be explored at the upcoming personal insolvency roundtable in March.
“We are aware that many of our stakeholders are interested in potential personal insolvency reforms,” he said. “As announced by the attorney-general, the government is keen to explore pressure points of the current personal insolvency system, critical reform areas and longer-term priorities.”
Access the full report at afsa.gov.au/StateOfPersonalInsolvency. For further information about the attorney-general’s personal insolvency roundtable, visit ag.gov.au.
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