Bankruptcy focus yet to pay off

BANKRUPTCIES continue to rise in Australia despite the Federal Government’s clamp down on those who misuse the bankruptcy laws to avoid creditors.

Bankruptcy figures for the March quarter from the Insolvency and Trustee Service Australia show that, while the total number of bankruptcies is on the decline, the use of Part IX and Part X agreements continue to climb.

Around Australia there were 5,672 new bankruptcies, a decrease of 3.26 per cent compared with the previous corresponding quarter.

In the nine months from July 2002 to March 2003 there were 17,010 new bankruptcies, a decrease of 6.76 per cent compared with the same period in 2001-02.

Against this the level of Part IX debt agreements was 47.24 per cent up in the past nine months compared with the previous corresponding period. And the statistics show that the number of new debt agreements are showing no signs of abating. In the past quarter alone, 859 new Part IX debt agreements were made, an increase of 20.14 per cent on the March 2002 quarter.

Part X arrangements were up also by nearly 10 per cent during the quarter.

In December 2002 the Federal Government passed bankruptcy re-forms designed to prevent people using bankruptcy in a mischievous or improper way. They new legislation will become effective from May 5 2003.

The Bankruptcy Legislation Amendment Act 2002 aimed to encourage people to avoid bankruptcy.

Attorney General Daryl Williams believes bankruptcy should only be a last resort for people who have overwhelming debts and need a fresh start.

Changes under the act include the removal of early discharge provisions, which have permitted some people to be bankrupt for only six months.

In addition, there has been an increase in the debt agreement income threshold by 50 per cent, to about $46,800 after tax, while the trustee’s power also have been strengthened.

Registered trustee in bankruptcy at Hall Chadwick, Paul Leroy, said the amended bankruptcy laws would provide a further “incentive through disincentive” for people to keep an eye on their spending habits.

“The removal of opportunities for early discharge will make bankruptcy a less appealing option and encourage people to be more careful with their finances,” Mr Leroy said.

“Figures will probably remain quite stable as the stigma of bankruptcy is restored.”

While the Government tries to make bankruptcy less attractive, the Reserve Bank of Australia is educating people to avoid getting into debt in the first place.

Elaborating on a research paper on household debt in a recent speech in Sydney, RBA governor Ian Macfarlane noted that households were more sensitive to variations in economic conditions.

At 125 per cent of average income, household debt is now at the upper end of the range of other comparable countries.

“Much as I think the [economic] expansion has a good deal further to run, I suspect that a significant number of households have chosen a debt level which makes sense in good times, but does not take into account the fact that bad times inevitably will occur at some time or other,” Mr Macfarlane said.