A recent report from Financial Counselling Australia (FCA), unveiled today, highlights a concerning rise in the number of Australians being pushed into bankruptcy. Alarmingly, the report reveals that the percentage of creditor petitions resulting in bankruptcy has surged, tripling in the past six years to reach 40%.

The findings emphasize that bankruptcy should be a last resort, yet many Australians are being declared bankrupt over relatively modest debts, sometimes as low as $10,000. These debts often balloon due to accumulating legal and interest fees.

One poignant case involved a woman who, unable to work due to PTSD, anxiety, and depression from an abusive relationship, faced bankruptcy proceedings initiated by her strata over a $10,400 debt. This amount was mostly comprised of legal fees and interest. Fortunately, she managed to borrow money from friends, narrowly avoiding bankruptcy.

In light of such cases, the FCA is advocating for strata bodies to be mandated to offer hardship assistance and to curb their legal pursuits against residents in their complexes.

FCA spokesperson Meyrick highlighted the issue, stating, “Forced bankruptcy is most prevalent in sectors lacking strong consumer protections, especially those without adequate rights to hardship support or fair dispute resolution.” He added, “In essence, it’s occurring where there are minimal safeguards.”

“Put simply, it’s happening where safeguards are minimal.

“Practical reforms are urgently needed to ensure fairness and consistency in the system.”

The number of private schools pursuing bankruptcy has also escalated, up to 2 per cent of all cases last financial year – the same proportion as strata bodies in 2020-21.

Almost half of those matters were from five schools in Victoria: Sirius College, Oakleigh Grammar, Overnewton Anglican Community College, Trinity Grammar School in Kew, and Wesley College Melbourne.

As with stratas, FCA said hardship assistance should be enshrined in all sectors where the protections don’t currently apply.

It also made seven other recommendations for governments, including that the bankruptcy threshold to be raised from $10,000 to $20,000.

“These are practical, achievable reforms,” Meyrick said. 

“They would make the system fairer and more consistent, helping to ensure bankruptcy is used only as a genuine last resort.”