More middle class declare bankruptcy

More and more middle class and high-income earners are taking advantage of cheap and easy insolvencies to escape debt and bankruptcy. Australia is experiencing a boom in insolvency activity and Victoria is the epicenter of the debt crisis.

Compared with the same period last year the number of consumer debt agreements entered into the three months to March 31 this year skyrocketed by almost 40 per cent.

Bankruptcies were also up 16 per cent, with the vast majority of these being non-business related. Personal insolvency agreements, which generally occur in higher income earners who cannot afford to repay consumer debts, jumped up by more than 50 per cent off a low base.

The Insolvency and Trustee Service Australia has reported that total insolvency activity was up 18 per cent across the nation in the March quarter. Victorian statistics are particularly frightening with total insolvency activity up by more than 22 per cent. Tasmania was the only state to show more growth than Victoria in the numbers of people who cannot repay their debts.

For people who have lost their job and cannot repay their debts bankruptcy is a relatively cheap and easy option.

John Beecroft, an insolvency specialist in South Yarra has stated that the bankruptcy can be a pretty cheap option if there are no real assets and no capacity to pay. He added that they do the paperwork and send it off to the Insolvency and Trustee Service where it is basically a paper entry.

ITSA'S official receiver Digby Ross agrees that bankruptcy is a cheap and easy option for debtors, and is a fairly straightforward process. All that is required is a one-page petition and a statement of affairs covering their creditors, any property they have, and their personal details.
The petition is filed and when it is accepted the person is bankrupt. There are no court appearances required.

A permanent record of the bankruptcy is placed on the National Personal Insolvency Index and the bankrupt person is denied credit for three years.

John Beecroft from debtassist.com.au stated that there had been a noticeable change in the type of person asking for assistance in the past few months. Lots of people from the outer suburbs were asking for assistance when rates and fuel prices were high, currently more people from middle class suburbs require assistance.

Mr. Beecroft added that people who had used their credit cards to buy shares and had a margin call was pretty common, or property investments that had gone wrong. For people losing their jobs bankruptcy is a common option.

Published on April 4-th, 2009 in Financial Planning
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.