Whether it’s due to bad luck or a bad economy, thousands of Australians each year file for bankruptcy. But as many of them find, it’s no easy way out.
In the first three months of this year, 4774 Australians went bankrupt – that’s 53 people per day, according to the federal government’s Insolvency and Trustee Service.
New South Wales reported the highest number of personal bankruptcies with 1553 ahead of Queensland (1411), Victoria (934), South Australia (332), Western Australia (322), Tasmania (140) and the Northern Territory (23) in the March quarter.
Those numbers may seem high, but it’s worth noting that they’re the lowest quarterly figures recorded since the 1996 March quarter.
Still, many young Australians are going bankrupt and it’s ruining their lives.
In the last financial year, 1066 young Australians filed for bankruptcy before their 25th birthday.
Finance commentator, Tom Elliott, said bankruptcy can last between three and eight years, so it’s a very serious issue.
“It’s very serious to be filing for bankruptcy, whether you’re young or you’re old. It affects so many aspects of your life: you can struggle to borrow money while you’re a bankrupt, it’s hard to go overseas while you’re a bankrupt,” he told news TV program The Project.
So why do so many Australians file for bankruptcy each year when it’s clearly not an easy way out?
Gerard Brody, chief executive of the Consumer Action Law Centre, said it does seem that the availability of credit is a significant driving factor.
“Everywhere we go these days we see ads for credit cards or car finance or personal loans and those things can quickly eat up someone’s budget if they lose their job or their circumstances change things can spiral out of control quite quickly,” he said.
Borrowers and credit cardholders are being warned that bankruptcy shouldn’t be seen as an easy way out. Bankruptcy is placed on a person’s credit report for seven years.
“What many people don’t realise, though, is a bankruptcy will be put on what’s called the National Personal Insolvency Index forever – so that mark will be there forever,” Brody said.
“It will linger on for some time and will have an impact on people’s access to credit in the future. For instance, if they want to get their life back together, get a home loan – that might be difficult for someone who’s had bankruptcy in the past.”
For those who find themselves struggling to repay an outstanding debt, the first thing you should do is contact your institution and talk to them about their financial hardship options, said Michelle Hutchison, spokeswoman for RateCity.
“Refinancing to a lower interest rate option could help to ease some pressure on repayments too. For instance, the average personal credit card interest rate in the RateCity database is 17.21 percent. By comparison, personal loans with interest rates below 10 percent are available through the site, so do your research, compare products, and take steps to help reduce your liabilities today,” she said.
For more information about dealing with financial hardship, financial counselling is a free service offered by community organisations, community legal centres and some government agencies or call the financial counselling hotline on 1800 007 007.