Australians declaring personal insolvencies jumps 13.7% in last 3 months

The harder times ahead for Australians was confirmed on Thursday when the Australian Financial Security Authority reported a 13.7 percent hike in personal insolvencies and 7 percent in bankruptcies in the last three months. The release of the report came one week after FTI, a business advisory company, reported a 15 percent growth in company insolvencies among Australian companies.

Reckoned the last 12 months for the 2015 financial year, personal insolvencies went up 4.4 percent and bankruptcies 0.2 percent. For personal insolvencies, it was the first increase since 2009 and for bankruptcies since the height of the global financial crisis in 2008, reports The Age.

The numbers are not surprising, says Kat Lane, principal solicitor at the Financial Rights Legal Centre. She explains, “We run an advice service and our overall view of things is that financial hardship is going up.”

Both personal insolvencies and bankruptcies are financial measures that people resort to when there is no other way out. A growing number of Australians are having difficulty repaying their loans which Lane considers intriguing since interest rates are low and unemployment relatively stable.

One factor which Lane pinpoints as a cause is the mining downturn that badly hit Queensland and Western Australia, likely resulting in lower wages for mine workers. Consequently, the workers needed to make major lifestyle changes to pay their debts, otherwise their incomes would not cover everything.

Lane notes that bankruptcy statistics are indicators of bigger financial problems ahead and overall financial hardship. The number of Australians who became bankrupt or entered debt or insolvency agreements with lenders jumped in all Australian states in the second quarter of 2016.

Hit hardest were Western Australia with 36 percent boost in insolvency and 31 percent bankruptcy, followed by Queensland with 14.8 percent increase in insolvency and 8.4 percent in bankruptcy.

Meanwhile, a new report from Moody’s Investors Service warns on the pressure on major banks of the low interest rates and rising household debts. Low interest led major banks to increase their share of lending to housing amid slower growth in business lending.

However, with low interest rates likely lasting, more banks could hike their housing loans, making the lenders increasingly sensitive to shocks in the housing segment, reports InvestorDaily.

VIDEO: How is a Personal Insolvency Agreement different to Bankruptcy?