Despite concerns about high household debt levels and mortgage stress, Australians appear to be managing their finances better than before with changes to the law having an impact.
The latest statistics from Australian Financial Security Authority (AFSA) reveal that in the March quarter 2019 bankruptcies were at their lowest level since the March quarter 1995.
Personal insolvency numbers may fall even further when changes to the system are introduced in June this year.
AFSA reports that there were 3,765 bankruptcies in the March quarter 2019 which is a fall of 9.2 per cent compared to the March quarter in 2018.
The biggest drop in personal insolvencies was in the debt agreement category with AFSA recording only 2,552 debt agreements in the March quarter 2019. This is a staggering 31.5 per cent fall compared to the same time in the previous year.
Total personal insolvencies fell nearly 20 per cent since the same time last year. These statistics cover the three types of personal insolvencies: bankruptcies, debt agreements and personal insolvency agreements.
The decrease in personal insolvencies may be due, in part, to the 2017 changes to the Bankruptcy Act, which introduced regulation of debt agreement administrators. Now only registered debt agreement administrators can process the Part 9 debt agreements.
Debt agreements are in Part IX (9) of the Bankruptcy Act 1966, and while they are not the same as becoming bankrupt, they have similar and serious consequences to filing for bankruptcy.
This change in the legislation has narrowed down a list of registered debt agreement administrators and has eliminated many companies that may have been taking advantage of debtors’ financial situation.
AFSA reported that in 2017/18 debt agreements made up over 47 per cent of total personal insolvencies, which is the highest that it’s ever been.
This is an increase from 1997/98, when AFSA reported that debt agreements made up just over 1 per cent of total personal insolvencies.
This is huge financial incentive for debt agreement administrators and has led to such an increase in debt agreements in Australia.
The decrease in personal insolvencies will continue as there is to be tighter regulation of the debt agreement regime through the Bankruptcy Amendment (Debt Agreement Reform) Act 2018 which was passed through parliament in September 2018.
The majority of the amendments will commence on 27 June 2019 and will improve industry standards by setting enhanced registration and practice requirements; introduce tougher penalties for wrongdoing and grant the Inspector-General in Bankruptcy additional investigative powers to address administrator misconduct.
The reforms include changes to:
- the length of a debt agreement a debtor can propose;
- debtor eligibility to enter into a debt agreement;
- the Official Receiver’s powers to refuse to accept a debt agreement proposal in exceptional circumstances;
- creditor voting rules around debt agreements;
- debt agreement administrator registration requirements; and
- the Inspector-General’s investigation and inquiry powers.
Consumer Action Law Centre chief executive Gerard Brody says: “Debt agreements have to be a maximum of 3 years, so it can be extended in other extenuating circumstances, but now we see agreements that are up to 7 years. I think the shorter time period is going make them less attractive for debt agreement administrators so we’re likely to see less debt agreements.”