After falling to a record low in the 2021/22 financial year, personal insolvency numbers are set to return to historical averages over the next couple of years, the Australian Financial Security Authority says.
AFSA released a report on Friday, State of the Personal Insolvency System, which analyses insolvency data over the past 20 years and makes some predictions for the current financial year and 2023/24.
Over the past 20 years, Australia has averaged more than 28,000 personal insolvencies a year, with a high of 37,263 in the 2009/10 financial year.
Structural changes contributed to a long-term decline in personal insolvency numbers over the past decade, to an average of 25,300. These included changes to lending standards, the impact of the Hayne royal commission on the behaviour of financial institutions (including debt recovery practices) and amendments to the Bankruptcy Act.
In 2021/22, personal insolvencies hit a historic low of 9545, thanks to government, central bank and industry responses to the pandemic.
AFSA said: “Personal insolvency volumes are expected to revert towards the 10-year average over the next two years, as the full impact of recent monetary tightening and other macroeconomic factors hit households.”
Through its stakeholder engagement it has observed a “moderate increase” in the number of people calling debt helplines to talk through options for credit card and mortgage repayments.
One interesting finding is that most people who entered personal insolvency in 2021/22 had low levels of debt. More than half (52.7 per cent) had liabilities of less than A$50,000 and 17.9 per cent had liabilities of $50,000 to $100,000.
Just under a quarter (23.4 per cent) of personal insolvencies are business related but these insolvencies contribute close to two-thirds of the $17.7 billion of debt in the insolvency system. The average debt for a business-related personal insolvency is $830,502.
The value of debt in the system is concentrated. The Australian Taxation Office and the big four banks are owned a total of $3.7 billion of business related debt and $2.4 billion of non-business related debt.
“As a result, the recovery and collection behaviours by the ATO and the big four banks have a significant impact on system outcomes,” AFSA said.