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State of the Personal Insolvency System: Report reveals that personal insolvencies are expected to rise by 23% in 2023-24
- The State of the Personal Insolvency System report showed that annual personal insolvencies are expected to rise by 23% in 2023-24 to around 12,250 – a substantial increase that is still below the long-term average of 23,100.
- Most people who entered personal insolvency during 2022–23:
- were between 25 and 44 years old (54.2%)
- worked in construction (12.1%), healthcare and social assistance (11%), retail trade (9.5%), other services (9.8%), or transport, postal and warehousing (8.7%)
- Most people in a personal insolvency (52.7%) had less than $50,000 in liabilities.
A report released today by the Australian Financial Security Authority (AFSA) reveals that after a period of historical lows annual personal insolvency volumes are expected to rise to around 12,250 in 2023-24, compared with just under 10,000 insolvencies recorded in 2022-23. This is a rise of 23%.
According to the State of the Personal Insolvency System report, nearly a quarter of active personal insolvencies are business-related, and they represent over two-thirds of the total system debt at $9.6 billion.
The report shows that economic challenges and cost of living pressures are causing households and individuals to experience greater levels of financial stress. Australian households now have the highest mortgage stress and highest cashflow constraints since the GFC. The number of debtors with very small saving buffers (under 10%) has increased from 15.7% in 2017-2020 to 20.58% in 2020-2023, further underlining the trend that young, renting households are the most adversely affected by economic challenges.
AFSA collects data on the demographics of those filing for bankruptcy or entering formal debt agreements. This data, which underpins the State of the Personal Insolvency System report, allows AFSA to draw insights and patterns about the insolvency ecosystem and the wider macroeconomic system to support a strong credit system for Australia.
AFSA’s Chief Executive, Tim Beresford, said: ‘The insolvency increase that our economy has been anticipating is now approaching.
‘In the current macroeconomic environment, with inflation, rising interest rates and economic uncertainty, personal insolvency volumes are on the rise again after a period of historic lows.
‘Households are feeling the cost-of-living pressure. The report shows that both mortgage holders and renters are now spending more than 86% of their disposable income on necessary living items.
‘Data also shows there is particular vulnerability for those with a very low asset to liability ratio, such as young households who are renting.
‘If you’re in financial difficulty, we encourage you to be informed about the options available.
‘Seek pre-insolvency advice from trusted organisations. There are bad actors who seek to take advantage of those who are most vulnerable. As the regulator, we help safeguard the personal insolvency system and stamp out bad actors.
‘Advice from a financial counsellor or registered insolvency professional increases your options and ensures you can make the best decision for your circumstances.’
You can access the full report on the AFSA website.
The Australian Financial Security Authority’s (AFSA) vision is a strong credit system for Australia. AFSA is responsible for administering Australia’s personal insolvency and personal property securities systems and managing criminal assets. The organisation’s role is to maintain confidence in these systems which provide Australian consumers and businesses with tools to manage financial risk, contribute to investor and business confidence, and provide enhanced access to finance within the economy. AFSA is developing as a visible, modern and contemporary regulator through education, compliance and enforcement.