Personal Insolvency Project

Overview

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.

Grant Information

Type of grant: Australian Research Council Linkage Grant

Funds received: $425,465

Chief Investigators

  • 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.

Partner Organisations

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.

Researchers

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.

Publications

L O’Brien, M Anderson, I Ramsay and P Ali, ‘More to Lose: The Attributes of Involuntary Bankruptcy’ (2019) 38 Economic Papers 15

L O’Brien, I Ramsay and P Ali, ‘The Hidden Dimension of Business Bankruptcy in Australia’, Oxford Business Law Blog (online), 25 January 2019

I Ramsay, L Bromberg and P Ali, ‘Low income, no assets, large credit-card debt: why more older Australians are declaring bankruptcy’, The Conversation (online), 24 January 2019

L Bromberg, I Ramsay and P Ali, ‘The Vulnerability of Older Australians in Bankruptcy: Insights from an Empirical Study’ (2019) 39.4 Adelaide Law Review 393 

L O’Brien, I Ramsay and P Ali, ‘The Hidden Dimension of Business Bankruptcy in Australia’ (2018) 46 Australian Business Law Review 291

V Chen, L O’Brien and I Ramsay, ‘An Evaluation of Debt Agreements in Australia’ (2018) 44 Monash University Law Review 151

P Ali, L O’Brien and I Ramsay, ‘Melbourne Law School research explores the practical impact of personal insolvency’ (2018) 16.1 Personal Insolvency Regulator 14

V Chen, L O’Brien and I Ramsay, ‘Debt Agreements and How To Avoid Unnecessary Debt Traps’, The Conversation (online), 20 October 2017

P Ali, L O’Brien and I Ramsay, ‘Misfortune or Misdeed: An Empirical Study of Public Attitudes Towards Personal Bankruptcy’ (2017) 40 University of New South Wales Law Journal 1098-1129

P Ali, L O’Brien and I Ramsay, ‘Bankruptcy and Debtor Rehabilitation: An Australian Empirical Study’ (2017) 40 Melbourne University Law Review 688-737

P Ali, M Anderson, L O'Brien and I Ramsay, 'The Incidence and Causes of Personal Bankruptcy in Australia' (2016) 4 JASSA - The Finsia Journal of Applied Finance 27

P Ali, L O’Brien and I Ramsay, ‘Bankruptcy, Social Security and Long Term Poverty: Results from a Survey of Financial Counsellors and Consumer Solicitors’ (2016) 44 Australian Business Law Review 144

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)

P Ali, L O’Brien and I Ramsay, ‘“Short a Few Quid”: Bankruptcy Stigma in Contemporary Australia’ (2015) 38.4 University of New South Wales Law Journal 1575

Submissions

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

I Ramsay and L O’Brien, Submission to the Senate Legal and Constitutional Affairs Legislation Committee regarding the Bankruptcy (Debt Agreement Reform) Bill 2018, 15 January 2018

Other References

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)

Ramsay, Ian and Cameron Sim, 'Personal Insolvency in Australia: An Increasingly Middle Class Phenomenon' (2010) 38 Federal Law Review 283

Ramsay, Ian and Cameron Sim, 'Personal Insolvency Trends in Australia 1990-2008' (2009) 17 Insolvency Law Journal 69

Ramsay, Ian and Cameron Sim, 'The Role and Use of Debt Agreements in Australian Personal Insolvency Law' (2011) 19 Insolvency Law Journal 168

Contact

For more information about the project, please contact Lucinda O'Brien (ph: (03) 8344 7096).