Bankruptcy getting attractive for debtors
Consumer debt agreements under "part ten" of the bankruptcy law in Australia have jumped 30 per cent over a year, despite law reforms introduced last year designed to crack down on the booming industry.
Total insolvency activity is up eleven per cent in the year to June 2009, despite a dip in the numbers following the economic stimulus payments that went out to households last summer.
Queensland is overtaking Victoria as second only to New South Wales as the state with most people going bankrupt or declaring themselves insolvent.
One third of bankrupts and insolvent consumers have debts of less than $20,000 that they cannot afford to repay, according to the Insolvency Trustee Service of Australia.
Proposed law reforms raise the level of unsecured consumer debt allowed to be covered by a part ten debt agreement up over $100,000.
That move is sure to benefit the listed Fox Symes Group and be privately opposed by banks.
Fox Symes is one of the few niche firms in the field of assisting to prepare and administer debt agreements that continues to leverage its dominance of the stressed debtor space. Westpac recently renewed its funding for Fox Symes' fledgling home lending product.
The law reform proposals, however, may disrupt the business model of firms such as Fox Symes.
Other reform proposals include reducing the maximum bankruptcy period from three years to 12 months with the possibility of (much) earlier discharge.
In a discussion paper circulated to finance industry organisations in late May, the attorney general, Robert McClelland, says bankrupts should not be punished and must be encouraged back into the economy.
A first-time bankrupt "who co-operates fully and promptly" should be able to be discharged from being declared a bankrupt almost as soon as the paperwork is completed and all creditors have been identified, says McClelland.
"A maximum of 12 months is considered more than adequate for the trustee to obtain all the information necessary to identify assets and debts, determine any possible liability to make income contributions and develop a plan to administer the estate."
McClelland points to "changing economic conditions" and suggests a number of reforms that would give "co-operative" consumers a very easy, cheap escape from their debts.
Former chartered accountant Fred Appleton is a former bankrupt who now has a booming business spruiking bankruptcy.
"I recommend bankruptcy to everyone who says to me, 'I can't afford my repayments'," says Appleton.
"If you think you are insolvent you are, and I say 'don't wait', go bankrupt and start your life, and your financial life too, all over again."
"The best thing most bankrupts do in their life is go bankrupt."
Fred Appleton says the proposed reforms are a big step forward.
"I applaud that something is now being done to address the fact that most bankruptcies are the result of misfortune rather than misdeeds."