Business and Non-business related causes of personal insolvency

May 10, 2017 eBankruptcy

Statistical information regarding the causes of personal insolvencies collected over the period of 2013-2014 revealed, unsurprisingly, that most insolvencies are not business associated. In fact, 81% of personal insolvencies were either not related to business, or the cause was unknown.

Major causes of business related personal insolvency
While most insolvencies were not related to business, there are many ways in which a business can contribute to personal insolvency. In fact, 19% of debtors listed business factors as causes to their insolvency. The reasons behind business related personal insolvency for 2013-2014 were as follows:

  • Economic conditions – 2378 debtors
  • Excessive drawings – 395 debtors
  • Excessive interest – 227 debtors
  • Failure to keep proper books – 158 debtors
  • Gambling or speculation – 35 debtors
  • Inability to collect debts – 125 debtors
  • Lack of business ability – 245 debtors
  • Lack of capital – 398 debtors
  • Personal reasons including ill health – 446 debtors
  • Seasonal conditions – 103 debtors
  • Other business reasons 1347 debtors

Business related causes of personal insolvency findings
Common causes of business related personal insolvency have been stable over time, with ‘economic conditions’ being the consistent culprit. While ‘economic conditions’ has steadily taken the top spot for years, the percentage of debtors citing this cause did rise significantly from 29% in the 2007-2008 report to 41% in the 2013-2014 report. ‘Lack of business ability’ actually fell 7% in the same time frame.

Major causes of non-business related personal insolvency
For 2013-2014 financial year, the most prominent cause for debtor insolvency was unemployment. In November 2013, the unemployment rate in Australia was sitting at its highest point in 10 years.  Given this record, it is unsurprising that personal financial crisis followed. The causes of non-business related personal insolvency for 2013-2014 were as follows:

  • Unemployment – 8418 debtors
  • Excessive use of credit – 6999 debtors
  • Domestic discord or relationship breakdown – 3056 debtors
  • Ill health – 2160 debtors
  • Adverse legal action – 682 debtors
  • Gambling or speculation – 544 debtors
  • Liabilities due to guarantees – 446 debtors

Personal insolvency report findings
There were 506 debtors that did not state the cause of their insolvency, and 1627 that listed “other” causes.

This data is extremely consistent with research collected over time, and the reasons remain stable. A report from AFSA noted that from the 2008-2009 time period to 2013-2014, the only major changes were an increase in “other non-business related” causes from 3-7% and a 2% decrease in debtors filing due to ill health.

If you are in financial distress due to business or non-business related causes, there is hope. Contact us today to discuss your options.