The December 2006 quarter personal insolvency statistics have been released by ITSA and they show an increased amount of personal insolvencies.
There were 6,016 new bankruptcies in the December 2006 quarter, which is a 19.7% increase from the 5,027 recorded in the same quarter last year. Only 1,060 of these were business related. Roughly 4,000 consumers went bankrupt during that period.
Part IX debt agreements were up 41.5% in the quarter to 1,511. We are looking for some statistics on what percentage of proposals actually become debt agreements. We suspect that there is a high failure rate, but this still appears to be the growth area of personal insolvency. This will also be one of the reasons that the government is introducing more regulation on this part of the industry.
Only 30 new personal insolvency agreements (Part X’s) were executed in the December 2006 quarter, being a decrease of 9% against the December 2005 quarter. Only 10 PIAs were executed each month, making about 120 yearly. This compares with 454 Part X agreements executed in the 2001/2002 financial year.
Some of this decrease will be attributed to the increase in Part IX debt agreements, but that only counts for the ‘smaller’ personal insolvencies. But some will relate to the perceived difficulty in having a Part X proposal accepted. (Sounds like a good article for next month’s newsletter.)
There were 7,557 new insolvencies in the quarter, being a 23.3% increase overall against the December 2005 quarter and a 16.4% increase for the 2006 calendar year. This rate is higher than the rate of increase in the population, so why is the happening and is this healthy?
Frankly, we do not have the answer to why, but we are certain that more than one factor is involved. Any increase is interest rates will have some inevitable effect on insolvencies, but this cannot be the sole reason for the increase. Increased consumer spending on credit must also have an effect, but we cannot determine any one factor. Maybe the economists can help us out.
Is this healthy? The strongest economies in the world are the ones with the best insolvency laws. While on a human level every bankruptcy affects the people involved, on a business level this process allows people to try, fail, and try again.