‘Sensible option’: More looking into bankruptcy as financial stress rises

For many, living with debt is a part of everyday life. But for some, as their level of debt – and stress – increases, bankruptcy is becoming an increasingly common option.

Bankruptcy is a legal process where an individual is declared to be unable to repay their debts. It typically lasts for three years, during which a trustee is appointed to manage your bankruptcy.

For some, as their level of debt – and stress – increases, bankruptcy is becoming an increasingly common option.Credit: Erwin Wodicka

Salvation Army’s national moneycare manager, Kristen Hartnett, says the charity often sees people explore bankruptcy when they feel they have no other options.

“Our experience is that when people have been ‘juggling their finances’ for a very long time and they’ve become quite worn out is when they’ll explore bankruptcy. The debt takes its toll on them financially and mentally, and can impact relationships,” she says.

“We explore all options before a person chooses the bankruptcy path and whether it’s the right decision for them and their family at the time.”

For gambling addict Adam (not his real name), bankruptcy is looking like an option.

In 2022, Adam’s addiction almost severed his relationship with his partner and family. Adam’s debt had hit six figures, he was behind in bills and rent; that’s when he knew it was time to act. The first step Adam took was to attend sessions with a gambling counsellor, followed by a debt counsellor.

After several meetings with both counsellors, a financial plan to get out of debt was put together. Adam was barely paying off the interest rate of $600 a month without even making a dent in his debt, something he describes as an “emotional rollercoaster”.

Adam spent many hours on the phone with his bank. The bank agreed as part of their “way forward” financial solutions program to freeze interest rates on his credit cards.

“My financial counsellor and I looked at all avenues, including support from my superannuation, but unless your health is critical; they won’t help with financial debt,” he says.

Adam and his counsellor went through a checklist of alternatives, including bankruptcy. After going through his situation, filing for bankruptcy was an option to clear his financial position.

Adam still hasn’t decided; his main concern is that his name will be listed on the National Personal Insolvency Public Index (NPII).

“Even though bankruptcy is the best option for me, and cleared in three years, my biggest embarrassment is that I will be listed on the NPII for anyone to access, my details, job and address. This is what is causing conflict and stressing me out,” he says.

According to new insights released by the Australian Financial Security Authority (AFSA) in February 2023, personal insolvencies are expected to rise towards pre-COVID levels over the next two years.

The State of the Personal Insolvency System report found rising costs of living and wider economic uncertainty are expected to see personal insolvency numbers increase from current historic lows.

For those who are struggling with unmanageable debt which they cannot pay, bankruptcy can be a sensible option says Fiona Guthrie, the chief executive of Financial Counselling Australia.Credit: Louie Douvis

Bankruptcy a sensible option

For those who are struggling with unmanageable debt which they cannot pay, bankruptcy can be a sensible option says Fiona Guthrie, the chief executive of Financial Counselling Australia.

“It’s an option that people need to think through carefully. It’s definitely something that can help. However, one needs to understand the impact of this strategy. Speaking with a financial counsellor can help with exploring other options and also help to avoid bankruptcy,” says Guthrie.

Guthrie said there has been a shift in the sort of people seeking help, with more people with jobs presenting with problems like mortgage stress.

“Right now things are really tough. The cost of living is high, yet incomes have remained the same, while expenses rise; it’s challenging. Over the past six months we’ve seen an increase in the number of people experiencing mortgage stress, or who can’t afford rent,” she adds.

Guthrie said that bankruptcy may form part of an initial conversation.

“Our role is to support people, so they know all of their options before they make this decision. We find many of their financial institutions quite accommodating based on each case and circumstance,” she adds.

Before considering bankruptcy it’s important to understand the consequences, such as it may affect your income or employment or business, and it may impact your overseas travel. Bankruptcy normally lasts for three years and one day from the day your bankruptcy form is accepted.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

To speak with a free financial counsellor contact the National Debt Helpline on 1800 007 007.

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