Trio of pressures causing personal insolvency surge
Christmas likely to be a tipping point, says insolvency specialist
A trio of financial pressures has caused a spike in personal insolvencies, and the situation is likely to worsen in the lead up to and post-Christmas, warns insolvency and business turnaround specialist Jirsch Sutherland.
The warning comes in light of recent personal insolvency statistics from AFSA, which showed a jump in the June quarter 2024 and, more recently, in July. According to the statistics, there were 2,947 new personal insolvencies in the three-month period to June 2024, up from 2,705 in June 2023, while in July this year, 1,157 people entered into a formal personal insolvency, an 8.9% increase from the previous month.
"Three key stressors, in particular, are tipping people into financial distress: tax debt, the inability to raise further finance, and strata debt," says Bankruptcy Trustee Stewart Free, a Jirsch Sutherland Partner. "The ATO's Director Penalty Notices (DPNs) are catching up with current and former company directors, which is causing an increase in business-related personal insolvencies, plus we're seeing a spike in business owners and individuals who have exhausted all financing options in a bid to pay debts. That's also leading to ballooning credit card debt, which is increasingly pushing people to the brink and over the edge as they rely on their cards to cover business and day-to-day living expenses."
Another major pressure is burgeoning strata debt, which is also causing a growing number of people being forced into bankruptcy, Free adds. "More and more property owners are falling behind paying their levies, and that's led to a spike in strata debt-related bankruptcies," he says.
And as we head into the Christmas season, Free predicts higher personal insolvency rates will continue. "Christmas can be a major financial trigger – and currently there's the added stress of a cost-of-living crisis. I foresee the situation worsening because of the financial 'hangover' that comes from over-reliance on credit cards and buy now pay later schemes."
Free also predicts there will also be an increase in Personal Insolvency Agreements (PIAs or Part X) in coming months. "It's a very effective bankruptcy alternative for individuals who are financially insolvent," he says. "In the three months to June 2024, there was a 74.3% jump in PIAs, and while the numbers are still quite low, I believe there will be an increase as people realise there are other options instead of having to declare bankruptcy. But regardless of the solution, it's important to remember there are options to help individuals deal with unmanageable debt and move forward in life."
