Personal insolvency spike reflects ongoing economic pressure

According to AFSA data, of the 1,063 new personal insolvencies, 651 were bankruptcies, 386 were debt agreements, 24 were personal insolvency agreements and two were insolvent deceased estates.

In addition to this, 11 new temporary debt protections were also recorded over the month, which give individuals 21 days of relief from unsecured creditor enforcement, allowing time to seek advice or consider insolvency options.

Over the month, 344 individuals who entered personal insolvency were also involved in a business including sole traders, partners, or company directors – up from 298 in November 2025.

From these figures provided by AFSA, Jirsch Sutherland partner, Emma Mos, said it was likely this was due to year-end financial pressure on business owners and directors, as well as tighter enforcement settings, higher interest rates and looming tax obligations.

“The December figures reflect a broader pattern, with personal insolvency increasingly occurring later in the business distress cycle, rather than as an immediate response to new shocks. This isn’t about sudden failure,” she said.

“What we’re seeing is the personal impact of prolonged business stress. For many business owners, years of pressure lead to personal insolvency as historic liabilities – including tax debts – materialise.”

While business-related insolvencies remained the key driver nationally, AFSA’s December data also showed total personal insolvencies had increased across multiple states over successive year-end periods.

New South Wales led the states with 329, followed by Victoria at 242, Queensland at 241, Western Australia at 90, South Australia at 64, Tasmania at 31, Australian Capital Territory at 19 and finally, Northern Territory at 10.

Mos noted this data mirrored similar experiences and trends she herself had identified in practice.

 “In one matter I am handling, a sole trader in the residential construction sector gradually took on larger contracts without changing the structure of the business – that is, incorporating. As multiple pressures converged, the business owner was unable to absorb the strain and was unable to pay trade suppliers,” she said.

“Over the following six to 12 months, that pressure flowed through to personal bankruptcy, with trade accounts and personal guarantees leaving not only the business owner but also his home at risk. It’s a reminder that structure and early advice matter, particularly as businesses grow.”

Based on this experience and insolvency data, Mos said pressure was unlikely to ease in the near term with year-end stress colliding with early-year obligations.

It was also predicted that personal insolvency numbers in Australia would continue to rise throughout 2025-26 and 2026-27.

Mos said this had been anticipated based on a steady upward trend after record lows during the pandemic, as well as expectations of a similar picture for corporate matters where numbers were already at 20-year highs.

This was attributed to persistent cost-of-living pressures, business-related stress, excessive borrowing and alternative credit, return of ATO enforcement, shrinking financial buffers and lagging effect of corporate insolvencies.