The human side of business-linked personal insolvencies

Business-related personal insolvencies account for billions in liabilities each year – but behind the numbers are real people. For one small business owner – a young medical professional – financial pressure didn’t stem from neglect or extravagance, but from the simple reality of juggling too much – work, family and rising costs. Her experience is a powerful reminder that insolvency isn’t about failure or blame but about finding a way forward when life and business pressures collide.

Business-related personal insolvencies remain a significant part of Australia’s financial distress landscape. In FY2023-24, AFSA data shows that just over one in four new personal insolvencies (25.1 per cent) were linked to business activity. While business cases made up only a quarter of all insolvencies by number, they accounted for the lion’s share of liabilities – more than $13 billion out of a total $17.3 billion.

The trend has continued into 2024-25. Although official full-year statistics are yet to be released, the September 2025 AFSA update shows that just over one in four (27.6 per cent) of all new personal insolvencies were business-related, underscoring the ongoing financial pressures faced by small business owners and self-employed Australians.

 A professional’s path to recovery

One recent case involved a young medical professional who, early in her career, was encouraged to invest in property as a way to “build wealth” and reduce tax. Trusting her adviser’s assurances, she proceeded without independent research.

At the same time, she was running her medical practice, studying for a specialist qualification, and caring for a child with significant health challenges. When interest rates rose sharply, the cost of maintaining the investment property climbed – and to cover shortfalls, she began using credit cards to meet day-to-day expenses.

When she came to us for help, it became clear that most of her income was being consumed by interest payments on both her credit cards and the property loan. She had around $228,000 in unsecured debt, largely from credit cards, and some modest equity (around $50,000) in the investment property.

After reviewing her financial position, it was determined that bankruptcy wasn’t her only option. Because she had maintained her tax lodgements and continued to earn a stable income from her practice, we recommended a Personal Insolvency Agreement (PIA – also known as Part X) – a formal alternative to bankruptcy that allows individuals to reach a binding settlement with creditors. Our client’s proposal, funded from future income over three-and-a-half years, offered creditors roughly 40 cents in the dollar – a substantially better return than bankruptcy would have produced. The creditors accepted.

Through the PIA, she was able to stabilise her finances, retain her investment property, continue operating her medical practice, and complete her specialist studies. Most importantly, she regained control over her financial future.

 A measured way forward

This case underscores an important message: insolvency doesn’t always mean financial ruin. With expert guidance and transparent communication, it’s possible to create outcomes that balance fairness to creditors with genuine recovery for debtors. For professionals whose livelihoods depend on maintaining reputations and licences, early advice can make all the difference between losing everything – and rebuilding stronger.

Michael Chan
Principal
Jirsch Sutherland