Imagine losing your home or business because of a debt that could have been negotiated, or because the rules meant to protect you are stuck in another era. This is the stark reality today as many Australians are being forced into bankruptcy over debts as small as $10,000.
Sometimes people need practical hardship arrangements such as affordable longer-term payment plans.Credit: Getty Images
Financial Counselling Australia’s report, Who’s making Australians Bankrupt?, found that forced bankruptcy is climbing. It was up 26 per cent in FY2023/24 and a further 16 per cent in FY2024/25. More than 6700 creditor petitions have been filed in the past four financial years alone.
Behind every statistic is a real person, a family, a community.
I am one of the very few fully funded financial counsellors who attends the Federal Court each week to assist people forced into bankruptcy by a creditor.
These people can rarely afford legal representation, so they will often arrive in court on their own and with very little understanding of the process and the potential consequences. This is especially traumatic for those who own an asset such as their home.
We see many people in court with unaffordable strata debts. Recently, a single woman aged in her 40s in court was clearly showing signs of stress and anxiety. The court registrar allowed for her case to be temporarily stood down so that she could seek advice from me. She suffered from a long-term health issue, has a modest but consistent income, and had saved for many years to buy her first home.
She felt very proud and empowered when she purchased her apartment, but soon after, she struggled to keep up with the quarterly fees, as they were much higher than she had anticipated. Late fee charges were applied, plus legal fees and court costs. Her overall debt surpassed the $10,000 threshold, allowing the owners’ corporation to proceed with bankruptcy proceedings.
There were no options left for her but to seek a short extension from the court to allow the property to be sold. The owners’ corporation continued its pursuit, and she was eventually made bankrupt.
The Australian Taxation Office is also very active in the Federal Court – we often see sole traders made bankrupt even when there are no assets to sell or future income to garnish.
In many cases, however, such situations could be avoided even at this very late stage. An aged pensioner recently appeared in court with a $20,000 strata debt (50 per cent of the debt being late charges and legal fees) – she felt ashamed and had told no one about her situation. A financial counsellor then found that she was paying a very high interest rate on her mortgage. Several years earlier, her bank had incorrectly arranged an investment loan (with a much higher rate) instead of a standard residential loan. The bank, to its credit, quickly resolved the matter and refunded the additional interest charges. The pensioner was then able to pay the outstanding debt and avoid bankruptcy.
Another case concerned a man who lived on his own and was facing imminent bankruptcy. He was not aware that he had reached preservation age and thus was able to make an immediate withdrawal from his super fund to pay his outstanding tax debt.
So what does this tell us?
Back in 2019 it was the major banks and debt collection agencies who were the most active in the Federal Court – today they are virtually nowhere to be seen. Why? Because they have since developed practical hardship programs. A national ombudsman scheme has been established, and these loan products now have reasonable protections in place to safeguard consumers.
This is not the case with the current major players in the Federal Court – the ATO, owners’ corporations and non-bank business lenders.
Australians want to pay their taxes, stay up to date with their strata fees and keep their businesses running, but sometimes they need the help of practical hardship arrangements such as affordable longer-term payment plans without continuous interest charges and fees applied. With this help, it is much more likely that principal debts can be repaid without the need of lawyers and the courts.
Forced bankruptcies should be a last resort in all such cases.
That’s why the time for reform is now. We need stronger consumer protections for business loans. The system must put people first, with clear guidelines for creditors to engage in meaningful hardship practices before pursuing bankruptcy.
There should be higher bankruptcy thresholds. At present, Australians can be bankrupted for debts as low as $10,000 – a figure that has not kept pace with inflation or the realities of modern living. Raising this threshold would ensure bankruptcy really was a last resort, reserved for truly unresolvable cases.
We also need additional funding to community organisations to support Australians who are unable to afford private legal or financial advice.
The government has said it will reform the system, but we have not been given a timeframe. It needs to act quickly because bankruptcy should always be the last resort.
Claude Von Arx is a senior financial counsellor at the Consumer Action Law Centre.
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