Sam* is in her early fifties, with two adult kids and is on a good income of around $85,000 a year. However, as a single mum she’d been grappling with mounting debt for a number of years.
Two weeks leading into Christmas, she’d accumulated over $66,000 in debt and the phone calls from banks and debt collectors were non-stop and getting unbearable. With no way of being able to pay it off, she decided to file for bankruptcy.
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Sam is the new face of middle-income families, who are more likely to be facing bankruptcy compared to two decades ago, based on new empirical research from Melbourne Law School, whose research is based on figures from the Australian Financial Security Authority.
The research also shows that overall there has been a significant increase in the level of financial stress that Australian households are facing. Between 1990 and 2008 there was a 261 per cent increase in the number of personal insolvencies in Australia.
Those becoming bankrupt are increasingly coming from higher status occupations, have a medium to higher level of personal and household income and have increasing asset and property ownership levels.
The detailed review is challenging stereotypes of bankruptcy, with society often condemning those who opt for bankruptcy as frivolous with money or on a low income, students or the unemployed.
Why do people go bankrupt?
When diving into insolvency data there are some other interesting trends around the reasons for bankruptcy and those who are more likely to be affected.
As a bankruptcy trustee firm, anecdotally, we do find that bankruptcy can happen to anyone, at any stage of life. We’re often asked if there are patterns, but this is hard to pinpoint as we see such variation. However, this research has shed real insight into the more subtle shifts in family household situations over the last two decades.
The research found that there are some other important changes in the characteristics of those impacted. For example, there has been an increasing number of bankrupt people who have dependents, who are over 45, who are managers and administrators, professionals, and associate professionals and who have higher levels of personal income and household income.
In 1997 unemployment was a key reason for individuals to file for bankruptcy, nowadays, it’s a little more complex. For non-business-related bankruptcies the three key reasons cited were excessive use of credit, ill health and gambling or speculation.
Vulnerable populations are also at risk here. On the surface, men and women are filing in similar numbers, however, the reasons for bankruptcy are strikingly different when looking at the two cohorts.
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Women who had gone through bankruptcy were more likely to be economically disadvantaged compared to men.
Women were also more likely to be the sole carers of children, with these women experiencing a greater degree of gendered disadvantage than other women in the bankruptcy system.
State to state there are anomalies in the data with a disproportionate number of personal insolvencies across some states and territories. In 2008, NSW, Queensland, SA and Tasmania had an overrepresentation in bankruptcies in comparison to their populations.
Older Australians are also more at risk, with this cohort citing excessive credit as the cause of bankruptcy compared to their younger and middle-aged counterparts.
While many think older Australians are ‘asset rich’ and own their own homes, the data showed differently with those older bankrupt people often not owning real estate.
For many, bankruptcy is the end of a very stressful time where debt has mounted and options for paying it back become more and more limited. It could happen to anyone and as the research suggest, it certainly is.
* names have been changed to protect individuals’ privacy.
Always seek advice from professionals when it comes to bankruptcy.
With more than 15 years’ personal insolvency experience, Simone is a certified practicing accountant (CPA) and a manager at Aravanis, Australia’s leading Registered Bankruptcy Trustee firm.
Aravanis offers free insolvency-related information that’s specific to your individual situation and can take you through the options that might be available.