The Top 3 Causes of Bankruptcy in Australia

The data is clear; in Australia the top 3 causes of bankruptcy are:

1. Unemployment
2. Domestic discord (divorce, separation)
3. Excessive use of credit

I know it’s probably no surprise that the number one trigger for bankruptcy is unemployment. Unemployment is particularly destructive because it often arrives without warning. Suddenly you’re left with no means of servicing debt that only last week wasn’t even on your mind.

It also may come as no surprise that the second major cause of bankruptcy in Australia is domestic discord/divorce. Couples often get into debt together; it’s up there with getting married these days as a rite of passage.  Then, when the relationships turn sour (which happens in about 50% of relationships) debt that was once affordable becomes unaffordable.  Primarily this is due to a doubling of expenses that there were previously; 2 rents, 2 electricity bills, 2 grocery bills, not to mention expensive lawyers if it gets ugly.

Excessive use of credit is the third most common cause of bankruptcy, or spending too much. With ready access to credit cards and personal loans, it’s easier than ever to live beyond their means. Seemingly without realizing it, they then wake up one morning with tens of thousands of dollars in credit card debt and an inability to meet the repayments or consolidate their way out.

AVOIDING BANKRUPTCY

The causes of bankruptcy are varied but they do point to some clues as to what you can do to avoid bankruptcy:

• Save for a rainy day, 5% of your income as a minimum.

• Pay attention to job security; think about the type of work you choose and look carefully for signs that your job may not be secure.  Consider income protection insurance; you can get some cover fairly cheaply

• Aim to be debt free as quickly as possible.

• Share everything with your partner/spouse/lover but DEBT.  The only debt you should have with your partner is a mortgage.