Sunday, September 09, 2012

Birth, marriage and debt: Bankrupcty in Australia

If you are a man, in your early forties and single, then  chances are you are more likely to be bankrupt. That’s the finding of the Profile of Debtors 2011 a new report released by Insolvency and Trustee Service Australia.  This Government agency would know as anyone who becomes bankrupt must lodge a statement of affairs with ITSA. 

The law covers this off under the Bankruptcy Act 1966 which allows for trustees to distribute property fairly among creditors and prosecute dishonest debtors.  Bankruptcy lasts three years but can be extended. Since 2003 several patterns among bankrupts have been noticeable: they are mostly male (55:45), they are getting older, and they have less children than before. The primary causes are unemployment and economic conditions affecting their industry (particularly since 2009). The majority of bankrupts earn $30,000 or less and the size of their unsecured debt is increasing.
Despite their low incomes, almost half of them have unsecured debt of more than $50,000 and over a quarter per cent have unsecured debt of more than $100,000.

Over 23,000 Australians went bankrupt in 2011 and ISA constructed a profile of the average bankrupt last year. He was male aged between 35 and 54 years and single without dependants. It was his first time bankrupt. He earned less than $30,000 in the 12 months prior to bankruptcy (well below the $48,000 national average) and owed more than $20,000 mostly to the banks. He had no assets like property that could be used to repay creditors.  Tasmania and Queensland had the highest percentage of bankrupts and NT had the lowest. Three percent of bankrupts identified as Indigenous (who comprised  2.5% of the population). 

Nearly half of the liabilities is unidentified by the research with the “other” category responsible for 47% of all debt. Of the identified debt, credit cards were highest, responsible for 21 percent of unsecured debt followed by personal loans and house mortgage both on 12 percent. Credit cards also accounted for 18% of personal insolvency agreement debtors’ debt and a record 58% of debt agreement debtors’ unsecured debt.
According to ASIC, Australians have over $36 billion owing on credit cards, an average of $4,700 per card holder. MoneySmart’s Delia Rickard said paying off their credit card debt should be a top priority for millions of Australians.  ‘If you have $4,700 credit card debt (the national average) and only make the minimum repayments, it will take 49 years to pay it off and cost you around $14,600 in interest,” Rickard said. “But if you are able to pay off $250 each month, you’d pay off your debt in two years and save $13,700 in interest.”

Despite the RBA keeping interest rates at historical lows, banks still charge astronomical rates for their credit cards. Paul Clitheroe said the average card rate is around 17 per cent but many charge 20 per cent or more. “Monthly interest charges continue to eat away at household budgets making it hard to get ahead with card debt,” he said. “If you're serious about clearing card debt, one solution is to use a personal loan to pay off the balance.” Clitheroe said this would increase monthly repayments but the debt would  be paid off in three to five years depending on the loan term.

There are new rules in place since July 1 which will allow people be better informed against the scams the credit card companies use to fleece their customers. The company must now refrain from offering limit increases on cards, unless agreed, provide monthly statements that show how long it will take to repay the entire balance if you only make minimum repayments and provide clearer details on interest-free periods. All new credit cards must include: facts sheets to make it easier to compare offers, the capacity for consumers to nominate the credit limit, a ban on over-limit fees, notifications if you exceed your credit limit and repayments to the most costly aspect of your credit card debt first (such as cash advances) to reduce debt faster.

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