iscoverChanges in the behaviour of creditors and debtors, coupled with lower unemployment rates, have led to a dramatic drop in the number of personal insolvencies over the last eight years.
AFSA unveils current personal insolvency trends, insights
14 July 2025
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9 minute read
Despite the current economic climate and subdued consumer conditions, the Australian Financial Security Authority (AFSA) has revealed a sharp drop in the number of personal insolvencies since 2017.
At the Financial Services Institute of Australasia (FINSA) webinar on Thursday, 10 July, Tim Beresford, AFSA chief executive, said insolvencies had risen steadily for almost 40 years from 1972 to 2009–10, before beginning to drop.
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“The biggest drop has occurred in the past eight years, thanks to three key drivers. First of all, creditors changed their behaviour in the wake of the Hayne Royal Commission in 2017. Next, debtor behaviour changed in the wake of the pandemic, and, finally, unemployment is lower,” he said.
“As a result of these drivers, personal insolvencies have fallen to levels we haven’t seen since the late 1980s. But there are some modest headwinds.”
“While we’re seeing promising economic improvement, geopolitical tensions mean there’s a lot of uncertainty and volatility in the world.”
Beresford attributed these tensions to the IMF and the World Bank significantly downgrading their economic growth forecasts in the wake of escalating trade tensions and policy uncertainty, as well as the ATO resuming its debt collection activities.
In addition to this, the webinar featured four insights into the personal insolvency system that AFSA had seen recently, including a substantial contraction of the unsecured credit market, the personal insolvency system not being a representative of the broader economy, the historic link between corporate and personal insolvencies, as well as the role of business-related insolvencies.
Beresford said that in 2008, personal credit was 14 per cent of GDP, as 80 per cent of it was unsecured, however, it was now down to 6 per cent.
“Instead of taking out a personal loan to buy a second car, people are turning to secured credit, using their redraw facility or offset account. It’s a smart choice, with a lower cost of finance.”
“This has allowed product innovation in the unsecured credit market, and new players to enter the market. Buy now, pay later has become more prominent in the credit system, with reports that over 30 per cent of people are using it to cover essentials like groceries and fuel.”
AFSA found that in the personal insolvency system, approximately 2 per cent of new debtors entering personal insolvency 10 years ago had a BNPL debt, and last year it was 49 per cent.
In the webinar, Beresford said he wanted to note that the personal insolvency system was not representative of the broader economy, as people entering the system often didn’t have an established asset base to fall back on when “times got tough”.
“In fact, renters make up around 90 per cent of new personal insolvencies. This is at odds with the economy where 31 per cent of Australians rent,” he said.
“People entering personal insolvency also have relatively little debt. Around half have debts less than $50,000 compared to the average Australian household debt of more than $260,000. In other words, personal insolvencies are largely skewed towards renters with unsecured debts and a low savings or asset base.”
“These debtors are less able to fortify their finances against external shocks such as the recent cost-of-living pressures or current geopolitical uncertainty.”
AFSA revealed that it had also noticed the historic link between corporate and personal insolvencies, as personal insolvencies typically followed corporate trends nine to 12 months later; however, that link was not as strong in the current environment.
This was noted to be a result of the unemployment rate sitting lower at 4.1 per cent than it had previously at 5.5 per cent before the pandemic.
Beresford said that when people had sufficient work, they were far better equipped to meet their personal financial obligations and that the business community was an important part of the AFSA system.
It was added that AFSA dealt with business-related personal insolvencies, which equated to 40 per cent of Australian businesses, and therefore played a huge role in the AFSA system.
Beresford urged finance industry professionals to work with ASFA in “collective stewardship”.
“Insights enable us to continuously adapt our practices to meet the evolving needs of the Australian economy and community and by sharing our insights, sharing them with you, we help foster collaboration and, ultimately, stronger financial regulation.”
“I need your eyes and ears. If you see something, say something.”
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