Bankruptcies buck the trend: trio of factors at play as alternative gains ground

Bankruptcies are defying the broader insolvency trend, driven by a combination of factors such as the low unemployment rate, rising property values and the continued ‘softly, softly’ stance of the big-four banks. Meanwhile, inquiries around Personal Insolvency Agreements are on the rise.

“Bankruptcies are not following the same trajectory as corporate insolvencies, largely due to a trio of factors,” says Malcolm Howell, Partner, Jirsch Sutherland. “Firstly, the unemployment rate remains in the ‘4s’, whereas personal insolvencies typically rise when unemployment is over six per cent. Secondly, rising property prices have boosted equity positions. Thirdly, since the 2017 Hayne Royal Commission, the big-four banks have taken a more lenient approach, with increased creditor support, improved communication with borrowers, and providing greater access to hardship programs.”

Howell notes that the rise in Personal Insolvency Agreements (PIAs – also known as Part X) is due to their increasing use as a tool for negotiating legacy debts. AFSA statistics show that PIA numbers are approaching pre-COVID levels, following a fluctuating trend in recent years. In FY2019, 188 people entered into PIAs, dropping to 167 in 2020. There was a sharp decline to 89 in 2021, followed by a rebound to 163 in FY2024. In the first half of FY2025, 87 PIAs were recorded, a figure Howell expects to rise to over 170 by the end of the financial year.

“We attribute the uptick in PIA inquiries to the burden of legacy debts hindering financial recovery, a surge in Director Penalty Notices (DPNs), ineligibility for Debt Agreements, and growing concerns over personal guarantees. But the rise in PIA inquiries is a positive shift. A PIA offers a chance to avoid bankruptcy, manage debt more effectively, and retain assets (if allowed in the Agreement) – all while avoiding the stigma often associated with bankruptcy. The increasing number of inquiries also shows that more people are seeking help earlier, which is crucial: the sooner you seek assistance, the more options you have available.”

Personal insolvencies poised to play catch up

Victor Vuong, a Manager with Jirsch Sutherland, expects personal insolvencies will “catch up” in the latter half of 2025 or early 2026 as the corporate insolvency domino effect unfolds. “Typically, personal insolvencies trail corporate insolvencies by 12 to 24 months, and we anticipate this pattern will hold,” he says. “However, there’s still a long way to go before they reach pre-COVID levels, which exceeded 15,000 in FY2019.”

He adds that while bankruptcies have historically lagged a rise in the cash rate by several years, the current economic landscape is “somewhat different.”

“In the past, the cash rate and bankruptcies closely tracked each other, as seen during the mid-1990s economic slowdown and the GFC of 2007-08. However, the cash rate has just been cut, unemployment remains low, cost-of-living pressures are still mounting, and the ATO is stepping up its debt-collection efforts,” Vuong explains.