KEY POINTS:
SYDNEY - The number of personal bankruptcies is set to climb this year as higher interest rates, the abundance of credit and the higher cost of living squeeze lower income earners, an insolvency expert says.
The number of personal bankruptcies jumped by a fifth during the three months
to December to more than 6,000, according to the latest data from the Insolvency and Trustee Service Australia (ITSA).
In New South Wales, which has seen its economy slow, bankruptcies jumped more than 30 per cent to a record 2,244.
Australia's booming economy has brought with it a higher cost of living as consumers get a taste of the good life.
The trouble is that many consumers, especially lower income earners, are caught short when external events like drought drive up the cost of food or higher interest rates make mortgage payments harder, said Paul Leroy, who is a registered bankruptcy trustee at Hall Chadwick.
"The overall picture of the last few years is one of increasing pressure on lower income people," Mr Leroy said.
"I don't see anything changing on the horizon that can alleviate that."
The growth of personal debt started with a shift some time ago from saving for long term investments to short term assets or trips abroad.
That shift, Mr Leroy said, stemmed from a "psychology of needing to keep up with the Jones"'.
Credit card debt has more than doubled over the past five years to A$37.3 ($42.58) billion as of October 2006 from just over A$17 ($19.41) billion in 2001, according to the latest data from the Reserve Bank of Australia.
Australian consumers spent some A$23 ($26.26) billion on the credit cards over Christmas alone, according to data provided by chartered accountants and business advisers Hall Chadwick.
Increasing competition to sell credit is also behind the surge in debt levels, said Mr Leroy, adding that he saw a case six months ago of a person with 14 credit cards declaring bankruptcy.
"There is a more relaxed attitude to credit," Mr Leroy said.
"People approach credit as if it's a bandaid that will take them through to better days."
Of the debtors declaring bankruptcy, more than two thirds had incomes of less than A$30,000 ($34,254) in the 12 months prior, according to the Profiles of Debtors 2005 from ITSA.
Some 55 per cent of bankrupts were male and 54 per cent were unemployed.
The growing bankruptcies comes as unemployment hovers at 30-year lows.
This week's employment data from the Australian Bureau of Statistics showed the economy added some 44,000 new jobs in December, keeping the unemployment rate at 4.6 per cent.
Confidence about being able to stay employed may be lulling some consumers into thinking they can take on more debt.
"In times like this when anyone who wants a job has one people feel more confident and may take on more debt," CommSec chief equities economist Craig James said.
"People may not factor in rises in interest rates or that they have a job in a sector that is not all that strong."
Economists have said that the latest economic data may point to at least one more interest rate hike this year.
While it is the lower income earners who are feeling the pinch, a surge in bankruptcies hurts the wider community as marriages break up and lenders are forced to absorb the outstanding debt, Mr Leroy said.
"Cashflow problems are the single biggest reason for marriage break down," Mr Leroy said.
"At the end of the day someone has to repay it."
- AAP
