Surge in personal bankruptcies

The number of personal bankruptcies jumped 12.2% in the last six months of 2008, and is set to rise further as the recession continues, according to a new study from the University of Melbourne.

The report, by Ian Ramsay and Cameron Sim, studied the increase in the rate of personal insolvencies between 1990 and 2008. Over that period, the number of bankruptcies increased from 8552 to 25,970 – and increase of just over 200%, compared with a 24% rise in the population.

Two key factors appear to behind the surge – excessive use of credit (which accounted for 55% of non-business related bankruptcies in 2008), ill health (12% of non-business related bankruptcies in 2008) and gambling (4.3% of non-business related bankruptcies in 2008, triple the rate of 1997).

Bankrupts are also getting older. The study shows that in 1997, 26.3% of bankrupts were aged over 45; in 2008, 45% of bankrupts were aged 45 and older.

Professionals seem to be getting caught in the bankruptcy trap more often. In 2008, just over one quarter of bankrupts were classed as managers, administrators or professionals, a sharp rise from 1999, when 11% of bankrupts came from these occupations.

Ramsay says bankruptcy is now a real issue for parts of the Australian middle class and also for older Australians.

“This is strong evidence that bankruptcy is becoming more of a middle class phenomenon, he says. “Bankrupts are increasingly coming from higher status occupations, have increasing levels of personal income and household income, and have increasing asset and property ownership levels.”

And with bankruptcy rates running at three times those of the last recession in the 1990s, he is predicting more pain ahead.

“Rates of personal insolvency have grown since 1990, when economic times have generally been good.  Now that we are experiencing very difficult economic times, the rate of personal insolvency is increasing and we can expect to see it grow across more parts of Australian society.”

Supporting this prediction is evidence that even small debts can result in bankruptcy.

In 2007, 16% of bankrupts had less than $10,000 in unsecured debt, while another 17% of bankrupts had between $10,000 and $19,999 in unsecured debts.

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