Australian households are experiencing rising levels of financial stress, manifested most visibly in personal debt default, negotiated compromises with creditors, and bankruptcy. No longer confined to lower income Australians, financial stress is an increasing problem for middle income Australians as well. This project entails an in-depth study of the relationship between financial stress and Australian personal insolvency laws in order to evaluate the effectiveness of these laws in practice. Major surveys of financial counsellors, consumer solicitors, consumer advocates and their clients will reveal how Australians respond to financial stress within the framework of Australia's personal insolvency laws, allowing for a detailed evaluation of that framework.
Type of grant: Australian Research Council Linkage Grant
Funds received: $425,465
- Associate Professor Paul Ali (Melbourne Law School)
- Professor Ian Ramsay (Melbourne Law School)
- Dr Kathy Landvogt (Good Shepherd Youth & Family Service)
- Mr Gerard Brody (Consumer Action Law Centre)
- Ms Fiona Guthrie (Financial Counselling Australia Incorporated)
Aims and Objectives
Recent empirical research at Melbourne Law School has revealed a dramatic increase in the levels of financial stress suffered by Australian households over the last two decades. This research also makes clear that financial stress is increasingly a 'middle class' phenomenon in Australia, challenging traditional stereotypes of personal insolvents as being on low incomes. The increase in rates of personal insolvency in Australia, coupled with the changing demographics of personal insolvents, demonstrate a pressing need for a thorough review of Australia's personal insolvency regime.
The project has several objectives, including:
- Analysis of the impact and effectiveness of Australia's personal insolvency laws, in the context of the changing demographics of people experiencing financial stress;
- Evaluation of these laws in relation to their policy objectives. Do they really provide debtors with a fresh start, or do they carry serious, long-term adverse consequences, many of which are not well understood by debtors prior to bankruptcy?
- An in-depth empirical study, including focus group interviews with and written surveys of financial counsellors, consumer solicitors, consumer advocates and their clients. This empirical study will explore the practical operation of Australia's personal insolvency laws, with a focus on how they are understood, utilised and negotiated by families and individuals undergoing financial stress;
- Examination of the ways in which Australia's personal insolvency laws operate in the period prior to bankruptcy. Do they have a pre-emptive or preventative role? This analysis will draw on the results of the empirical study;
- Consideration of whether or not Australia's personal insolvency laws require reform in order to achieve their policy objectives, in light of the increasing numbers and changing demographic profile of personal insolvents in Australia.
To assess the complex and interrelated legal and social issues surrounding financial stress in contemporary Australia, the project will collaborate with three major community organisations: the Consumer Action Law Centre, Financial Counselling Australia and Good Shepherd Youth & Family Service. These organisations have unparalleled first-hand knowledge of the impact of financial stress on Australian families and individuals.
Associate Professor Paul Ali (Chief Investigator)
Paul Ali is an Associate Professor at the Melbourne Law School. For further information, please refer to Paul's profile on Our Staff webpage.
Professor Ian Ramsay (Chief Investigator)
Ian Ramsay is the Harold Ford Professor of Commercial Law at the Melbourne Law School, where he is also Director of the Centre for Corporate Law. For further information, please refer to Ian's profile on Our Staff webpage.
Lucinda O'Brien (Research Fellow)
Lucinda O'Brien is a Research Fellow at the Melbourne Law School. For further information, please refer to Lucinda's profile on Our Staff webpage.
Status of the Project
The project commenced in mid-2014. In 2014 the research team carried out a detailed review of existing empirical research on bankruptcy, both in Australia and in other jurisdictions.
In 2015, the research team conducted a highly focussed empirical study of financial counselling services and their impact on people at risk of bankruptcy. This study was facilitated by a formal partnership with the Federal Circuit Court, Consumer Action Law Centre and the Financial and Consumer Rights Council (Victoria). The research team carried out a detailed evaluation of financial counselling services provided to debtors in the Bankruptcy List at the Federal Circuit Court in Melbourne. It surveyed debtors and creditors’ solicitors and conducted group interviews with financial counsellors and Deputy District Registrars of the Court. It concluded that on-site financial counselling provided valuable assistance to debtors, while also improving the efficiency of the Bankruptcy List.
Drawing on this research, and in consultation with its partner organisations, the research team has conducted two comprehensive empirical surveys regarding bankruptcy, debt agreements and their impact on people experiencing financial hardship. In mid-2015, the research team carried out an online survey of financial counsellors, consumer solicitors and other community advocates around Australia. A second online survey explored the experiences of individual debtors.
In 2016, the research team conducted further empirical research, including a study of attitudes to bankruptcy in the general community and focus groups with financial counsellors and consumer solicitors.
In 2017 and 2018, the research team published a number of scholarly articles based upon its empirical research. The project concluded in 2018.
Throughout the project, the research team has liaised extensively with the Australian Financial Security Authority (AFSA), the regulator of Australia’s personal insolvency system. In accordance with its commitment to supporting the scholarly study of personal insolvency, AFSA has provided the research team with a large data set containing de-identified records of nearly 29,000 individual bankruptcies initiated between 2006 and 2017. This data set has afforded a unique insight into the Australian personal insolvency system and the characteristics of insolvent debtors.
Over the course of the Personal Insolvency Project, the research team has engaged with policymakers and AFSA in relation to several policy and law reform initiatives. In 2018, the team made a submission to an inquiry conducted by the Senate Legal and Constitutional Affairs Legislation Committee, regarding the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018. Findings from the project, including previously unpublished data, were cited in Senate debates concerning the Bill. In the same year, the research team made a submission to the Senate Economic References Committee Inquiry into Credit and Financial Products Targeted at Australians at Risk of Financial Hardship. This submission was cited in the committee’s final report. The research team also made a submission to AFSA’s internal review of the Statement of Affairs, the form which must be completed by each individual who enters bankruptcy. Several recommendations outlined in this submission were adopted by AFSA and incorporated into a new, significantly revised version of the Statement of Affairs form.
P Ali, L O’Brien and I Ramsay, ‘Financial Counselling and the Self-Represented Debtor in the Federal Circuit Court Bankruptcy List: An Analysis of a Recent Pilot Service’ (2015) 23.4 Insolvency Law Journal 161
P Ali, L O'Brien and I Ramsay, 'Perspectives of Financial Counsellors and Consumer Solicitors on Personal Insolvency' (Research Report, Personal Insolvency Project, Melbourne Law School, The University of Melbourne, September 2015)
P Ali, L O'Brien and I Ramsay, ‘Federal Circuit Court Financial Counselling Project Evaluation' (Research Report, Personal Insolvency Project, Melbourne Law School, The University of Melbourne, August 2015)
I Ramsay, P Ali and L O’Brien, Submission to the Senate Standing Committee on Economics Inquiry Into Credit and Financial Services Targeted at Australians at Risk of Financial Hardship, 9 November 2018
I Ramsay, P Ali and L O’Brien, Submission to the Australian Financial Security Authority’s consultation regarding proposed amendments to the Statement of Affairs and Application for Bankruptcy, 2 November 2018
Australian Financial Security Authority, Assessing the experiences of debtors and creditors with practitioners during the personal insolvency process – a market research report for the Australian Financial Security Authority (25 May 2017)
Consumer Action Law Centre, Fresh start or false hope? A look at the website advertising claims of Debt Agreement administrators(2013)
Good Shepherd Youth and Family Services, Ryan Martin, Beverly Kliger and Bill Healy, Smiling for the First Time: Bankruptcy for People with a Mental Illness: What Happens When Credit Code Remedies Fail? (2010)
Morrison, David and Rachel Lee, 'Trends in Personal Insolvency in Australia - An Update' (2012) 20 Insolvency Law Journal 18
Porter, Katherine (ed), Broke: How Debt Bankrupts the Middle Class (Stanford University Press, 2012)
For more information about the project, please contact Lucinda O'Brien (ph: (03) 8344 7096).