Reform process continues despite bankruptcy decline

AUSTRALIAN bankruptcies may have fallen during the past quarter compared with the corresponding period last year, but the Federal Government is continuing its campaign to tighten bankruptcy and insolvency laws.

Figures from Insolvency and Trustee Service Australia show that the number of bankruptcies filed annually have fallen by 9.24 per cent, or more than 2000, over the past year, although increasing marginally by 0.6 per cent during the quarter.

In WA there were 618 bankruptcies during the quarter, 88 Part IX agreements and 22 Part XI arrangements.

But not too much should be read into the figures, according to Hall Chadwick personal insolvency specialist Paul Leroy.

“[The] decline must be looked at in the context of 2001 being an appalling calendar year for bankruptcies – the worst we’d seen since 1998, itself the worst year in a decade,” Mr Leroy said.

He believes economic conditions could change in the next year, which may lead to a further deterioration.

“While statistics remained static over the last quarter, conditions could easily change, especially if Australia begins to feel the effects of the currently weak European and US economies,” Mr Leroy said.

“Should housing prices fall, there is also a real risk of negative equity, which could lead to another increase in bankruptcies.”

Of particular concern to the Government is the high level of non-business, or personal, bankruptcies, which make up about 85 per cent of bankruptcies filed during the July-September quarter.

Mr Leroy backs the Government’s reform process, arguing that changes are urgently required.

“In many cases, people file for bankruptcy because it is, quite simply, the easiest option avail-able,” he said.

“Reform to existing regulations would encourage people to work through their finances rather than just call it quits.

“If passed, the proposed changes will make bankruptcy less attractive and will hopefully return it to the status of a last resort, rather than an easy escape option.”

The Commonwealth review of Part X of the Bankruptcy Act 1966 seeks to stop some debtors abusing the arrangements that act as an escape route for people in financial difficulties.

The Insolvency and Trustee Service Australia and the Attorney General’s Department, in consultation with the Bankruptcy Re-form Consultative forum, are under-taking the review.

Attorney General Daryl Williams said the review would focus on the practical operation of Part X and examine possible administrative and legislative improvements to the system.

“These might include an enhanced role for ITSA’s bankruptcy regulation arm and education pro-grams aimed at practitioners,” he said.

However, research by ITSA outlined in the latest Profiles of Debtors booklet released last month indicates that most bankrupts were real strugglers.

ITSA studied the socio-economic situation of bankrupts, or those who entered into Debt Agreements in 2001-02. The study found that those living with a family were least likely to file for bankruptcy, and females were less likely to go bankrupt than men.

“While there are some in the community who seek to use bankruptcy as a means to escape their financial responsibilities when they may be in a position to repay their debts, this report shows that the vast majority are people in genuine financial distress,” ITSA CEO Terry Gallagher said.