Friday, 17 July 2015

Debt fossilising as Australia ages

Personal insolvency professionals will have to
develop strategies for dealing with ageing debtors
THE latest statistics on bankruptcy suggest that relatively speaking, its smooth sailing. Squalls may loom but they've yet to manifest in the numbers published this week by the Australian Financial Security Authority (AFSA).

Personal insolvencies were down in 2014/15, an overall drop of 4.2 per cent. There were 7.7 per cent fewer bankruptcies and only negligible increases in debt and personal insolvency agreements. On seeing AFSA's stats, trustees in bankruptcy would've slept untroubled by concerns about whether they have sufficient staff.

There is another issue on the insolvency horizon though, one more complex and challenging than a scarcity of appointments or uncertain economic cycles, and that is the increasing age of bankrupts and the maturing of their debts.

AFSA touched on the issue in May. In its report - Ages of bankrupts since 2008 - the regulator detailed how the "most common age" of bankrupts rose from 37 in 2008 to 43 in 2014. 

"Where we could identify the age of bankrupts .... (T)he proportion of bankrupts aged between 50 and 64 years increased from 22% in 2008 to 26% in 2014," AFSA said.

"There were increases in all age groups in this range. The largest increase was in bankrupts aged between 50 and 54 years."

From 22 per cent to 26 per cent represents an increase of 18 per cent in six years. Within this age group are many preparing for retirement. How bankrupts within this group endure their three years shackled to a trustee will contribute to trends in bankruptcy as the overall population ages.

According to modelling published by the Treasury Department, Australia's plummeting fertility rate and soaring life expectancy will see the number of Australians over 65 swell to 25 per cent of the population over the next 40 years. In the early 1970s, a third of the population was 15 or younger.

Illnesses like dementia are likely to become a more commonplace feature of the bankruptcy landscape as financial illiteracy and the ravages of age conspire to bring personal insolvency professionals into regular contact with vulnerable and incapacitated elderly. 

Registered trustees can expect to find themselves dealing more often with state Trustee & Guardian services and with associates of the bankrupt holding power of attorney. They may also find themselves more regularly mired in disputes with ageing bankrupts' relatives. And then there is the other ageing issue.

In the Australian Tax Office's (ATO) annual report for 2014, the ATO made reference to the proportion of outstanding debt that is getting long in the tooth.

"Our focus is on engaging taxpayers early while their tax and superannuation debts are most easily addressed, however the proportion of total collectable debt aged two years or more has increased to 20.8% at 30 June 2014, from 17.8% at 30 June 2013," the ATO said.

"Our research on the prevention of aged debt, with a focus on small business, will assist in developing future strategies in this area." Good luck with that. 

So, there's the future facing personal insolvency practitioners - antiquated Australians with fossilised affairs and debts outliving both them and those to whom it's owed. The insolvency profession would be remiss if its not already developing strategies to deal with this looming trend.

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