11/07/2008 - 14:26

WA bankruptcy levels rise 10.3%

11/07/2008 - 14:26

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Western Australia has recorded a 10.3 per cent rise in bankruptcy levels over the June quarter while national levels over the past financial year were at their second highest on record.

Western Australia has recorded a 10.3 per cent rise in bankruptcy levels over the June quarter while national levels over the past financial year were at their second highest on record.

According to data from federal industry regulator Insolvency and Trustee Service Australia, 375 cases were filed for bankruptcy over the June quarter, up from 340 in the same period last year.

Meanwhile the state's total insolvency activity, which includes bankruptcy, debt agreements and personal insolvency agreements, increased 11.04 per cent to 513 cases, puttig WA at second place behind New South Wales which rose 13.35 per cent to 3514 cases.

South Australia was the only state to record a drop, falling by 4.12 per cent from 656 to 629 cases.

Over the 2008 financial year, total insolvency activity rose by 1.21 per cent across WA.

Hall Chadwick Accountants senior partner Paul Leroy said the latest statistics were cause for concern.

"Serious concern is warranted about the latest bankruptcy statistics from the Insolvency & Trustee Services Australia," Mr Leroy said.

"All the tell tale signs are there - high levels of debt, increasing prices and cost of living, stalled asset prices, and rising interest rates."

Meanwhile on a national level, bankruptcy levels rose 2.93 per cent to 32,909 cases over the 2008 financial year, but one in five struggling borrowers facing financial ruin chose to enter into a debt agreement rather than surrender their assets.

This month marks the first anniversary of new laws that stop debt agreement administrators charging battlers upfront fees before creditors are paid.

Some 6,619 people who were insolvent and unable to pay their bills entered into a debt agreement in the past financial year.

The group comprises 20 per cent of the nation's 32,909 new personal insolvency cases.

By comparison, 25,981 financial battlers declared themselves bankrupt.

This bankruptcy tally was 400 shy of the all-time high in the 1998/99 financial year.

In that year Australia's 811 debt agreements made up less than three per cent of insolvency activity.

The Insolvency and Trustee Service Australia, has called the debt agreements, where creditors are usually repaid over two to three years, a good news story.

"The thing to remember with debt agreements compared to a bankruptcy is creditors will see a return with debt agreements," ITSA executive director Peter Lowe said.

"While there might be a number of people in financial distress, a good proportion are able to manage their way out of their predicament.

"Initially creditors were sceptical whether they should support debt agreements. These numbers speak for themselves."

Debt agreements are allowed if a struggling borrower has not been a bankrupt, has an annual after-tax income of less than $60,200 and unsecured debt of less than $80,200.

The agreements have been around since 1996.

Unlike a bankruptcy, people entering into a debt agreement do not have to surrender their assets.

Debt agreement administrators have to make sure creditors are paid before they charge the struggling borrower administration fees under laws that came into effect in July 2007.

A licensing system for debt agreement administrators was introduced also.

Administrators are still free to set fee rates for developing a repayment proposal.

Fees for monitoring a debt agreement are still charged over the life of the arrangement.

Australian Financial Counselling and Credit Reform Association chair Jan Pentland said it was premature to declare the legal changes a success.

"We'd like to say they are. It's too early to say," she said.

Ms Pentland said only one-third of debt agreements entered into between 1996 and 2007 worked because administrators were more concerned about collecting fees than developing the right repayment strategy.

"In the past, the major flaw was there was heavy advertising of debt agreement administrators," she said.

"Debt agreement administrators made money putting people through the process. The fact is only one-third were working."

Total insolvency activity grew by 3 per cent in 2007/08.

This was lower than the previous financial year's 17 per cent pace and the record high growth of 28 per cent during the recession of 1991/92.

Over the past two decades, personal insolvency rates had grown by a trend average of about 7 per cent, ITSA said.

Lehman Brothers chief economist Stephen Roberts said insolvency rates were likely to increase at a faster pace this financial year as unemployment rose.

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