Personal bankruptcies climb as credit card defaults grow

The number of personal bankruptcies has soared in the first three months of the year as consumers struggle with unemployment and high personal debt levels.

According to statistics from the Insolvency and Trustee Service of Australia, the number of personal bankruptcies in the March quarter rose 13.7% against the previous corresponding period to 7164.

That is just five fewer that the record number of bankruptcies which was recorded in the June quarter of 2001.

Around 85% of the personal bankruptcies for the March quarter were non-business related. ITSA spokesman Adrian Wilson says its latest research shows unemployment and excessive use of credit facilities are the main reasons given for bankruptcies.

This was further supported by data from financial information firm Veda Advantage, which showed that credit card and personal loan applications fell 13% in the March quarter as consumers desperately attempt to reduce their debt loads.

Veda chief executive Rory Matthews also says credit card defaults also continued to rise during the first three months (he will not reveal precise numbers for competitive reasons) indicating that consumers may be having trouble paying off Christmas spending debts.

While consumers are clearly being hit hard by the downturn, ITSA data shows the number of business-related bankruptcies actually fell from 958 in the March quarter of 2008 to 824 over the same period of 2009.

But this number is expected to rise sharply in coming months. Insolvency practitioner Jim Downey says personal business-related bankruptcies typically occur as a result of director guarantees being called in by banks and finance companies when companies collapse. As such, these bankruptcies typically come about from company insolvencies, which jumped 23% in the March quarter.

The ITSA statistics also show a large rise in the number of people seeking to put in place a debt agreement with creditors and avoid bankruptcy. In the March quarter, the number of debt agreements surged 36.6% to 2055.