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Unemployment and Credit Card Debts – The Major Causes of Bankruptcy in 2014

17/03/2015 by Bruce Gleeson

Recent statistics issued by the Australian Financial Security Authority (“AFSA”) reveal that for the 2013/14 financial year unemployment/loss of income (8,418) and excessive use of credit card facilities (6,999) were the top 2 causes of personal insolvency. These causes have remained relatively stable since 2007/08 and are not necessarily a huge surprise.

Whilst not overly unexpected, in my experience as a Bankruptcy Trustee it does illustrate what I find commonly happens and should serve as a timely reminder for individuals who may find themselves in a position where their employment has been terminated.

When there is a loss of employment, it is not uncommon after the termination payment has been spent for there to be a tendency to rely on credit cards to continue funding expenses and lifestyles of the individual / family. After all there is a view taken that another job will be just around the corner. Or will it? What was just going provide very short term funding to get through then goes on for many months and additional cards frequently get added along the way. Before you know it there may be about 6 credit cards (and quite often more) all with between a $5,000 – $20,000 limit. Oh and I forgot to mention the odd personal loan and monies borrowed from family members. For example in 2014 I was appointed to a bankruptcy administration where the individual had accumulated 12 credit card debts with combined debts over $250,000. Ouch!!

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With no real change in employment circumstances (ie still unemployed) and no real trimming of family or personal expenses and being able to only make minimum payments, the whole position spirals quickly out of control. This cycle also quite often involves a health issue which can further exacerbate the feeling of helplessness. And then the calls start from the collection agencies appointed by the credit card providers which add more stress.

The statistics also reveal that for 2013/14 excessive use of credit for clerical and administrative workers was the most common cause personal insolvency.

When business confidence is low (ie because there isn’t much top line growth to be easily had in the business) there is a tendency by management to focus on headcount and other overhead expenses to meet profit targets and appease shareholders. This means looking at exiting certain staff. With the unemployment rate currently sitting at a stubborn 6.3%, individuals and households should regularly review their reliance on credit as a means to fund day to day expenses particularly where such debt is not being regularly cleared in full or substantially so.

None of us ever really know what is around the corner, however if we hit corner already burdened with credit card debt, the path then becomes a slippery slope. If you are finding that your financial position is getting out of control why not speak to us for initial free consultation. You can also visit our website www.jonespartners.net.au and read more blog articles on bankruptcy and related topics. If you would also like to know more about the recent statistics released, please visit www.afsa.gov.au .