Debt struggles expected to rise: ASFA

A new report from the Australian Financial Security Authority (ASFA) has found personal insolvency cases are set to soar by 23 per cent in 2023-24 compared to the previous period.

The State of the Personal Insolvency System report showed personal insolvency volume is expected to hit 12,250 in 2023-24, up from the less than 10,000 insolvencies recorded in 2022-23.

This still remains under the long-term annual average of 23,100 insolvencies.

Close to 25 per cent of active personal insolvencies were business related, which accounted for more than two-thirds of the total debt of $9.6 billion.

In 2022-23, 54.2 per cent of people who were personally insolvent were aged between 25 and 44 years old; 12.1 per cent worked in construction; 11 per cent worked in healthcare and social assistance; 9.5 per cent worked in retail trade; 9.8 per cent worked in other services; and 8.7 per cent worked in transport, postal and warehousing.

“The insolvency increase that our economy has been anticipating is now approaching,” AFSA’s Chief Executive, Tim Beresford, said.

“In the current macroeconomic environment, with inflation, rising interest rates and economic uncertainty, personal insolvency volumes are on the rise again after a period of historic lows.”

The report also showed the impact of recent economic conditions and cost of living pressures on households and individuals, who have signalled higher levels of financial stress.

Australian households have both the highest mortgage stress and cashflow constraints since the Global Financial Crisis (GFC), ASFA said. The number of debtors with saving buffers under 10 per cent has risen in the last six years, from 15.7 per cent in 2017-2020 to 20.58 per cent in 2020-2023.

“Households are feeling the cost-of-living pressure. The report shows that both mortgage holders and renters are now spending more than 86% of their disposable income on necessary living items.

“Data also shows there is particular vulnerability for those with a very low asset to liability ratio, such as young households who are renting.”

“If you’re in financial difficulty, we encourage you to be informed about the options available.

“Seek pre-insolvency advice from trusted organisations. There are bad actors who seek to take advantage of those who are most vulnerable. As the regulator, we help safeguard the personal insolvency system and stamp out bad actors.

“Advice from a financial counsellor or registered insolvency professional increases your options and ensures you can make the best decision for your circumstances.”