The Stigma of Bankruptcy still alive and well in Australia

Australians assume those who go bankrupt are dishonest The archetype  of a bankrupt person is totally wrong By Andrew Aravanis

New analysis from the Melbourne School of Law finds that Australians have an innate distrust of those who have gone bankrupt. Drawing on a survey of 2,000 Australians, respondents assumed that individuals becoming bankrupt were predominantly those in business who have been overly greedy or dishonest.

bankrupt bankruptcy

The research paper based on this survey and other research suggests that the bankruptcy stigma is still alive and well. However, researchers also found that there was some sympathy if respondents were told that the reasons behind bankruptcy were due to unemployment, illness or other unforeseeable events.

As a registered bankruptcy trustee myself, we know anecdotally that corruption, being a ‘highflyer’ and dishonesty are actually unlikely reasons for bankruptcy. In fact, nearly 80 per cent of all bankruptcies in Australia are non-business related or, what we would call, ‘consumer’ bankruptcies.

In reality, our clients come from varied backgrounds and become bankrupt for many complex reasons. Despite this, the one thing many have in common is fear about the reaction they may get from peers and self-imposed sense of shame about their financial situation.

When drilling into the original survey the ‘shame phenomenon’ around bankruptcy is one of nuance. Many Australians do not hold unequivocal views one way of the other. While there’s a generalised feeling of strong disapproval, on a case by case basis, the attitudes shift with an understanding of the suffering individuals would face when dealing with debt and severe financial pressure.

The MelbourneSchool of Law paper gives an interesting insight into where this perception may come from based on media coverage skewing the public perception of bankruptcy over the years.

In the 1990s, business tycoons Alan Bond and Christopher Skase were publicly condemned for racking up multi-million dollar debts. After filing for bankruptcy, they appeared to continue living what most people would deem to be extravagant lifestyles.

In the 2000s, a group of Sydney barristers were ‘disgraced’ for becoming bankrupt due to substantial income tax debts.

Apart from high-profile cases, bankruptcy, in general, doesn’t get much media coverage. In fact, the paper states that middle-class bankruptcy is almost invisible in Australia.

According to the Australian Financial Security Authority (AFSA) statistics, the most common occupations for people who are bankrupted to be clerical or administrative. In fact, far from bankruptcy being the domain of the wealthy, statistics show that 39 per cent of bankrupt people earn between $30,000-$70,000 per annum, while 52 per cent are on less than $30,000 a year, pointing to either underemployment or unemployed statuses.

This may surprise many.

The presumptions of poor financial management, extravagance and greed fade when the real data shows what’s happening behind the scenes.

Stereotypes around high-flying entrepreneurs can be debunked further by research that shows a significant proportion of Australians who go bankrupt in fact suffer from ‘long term’ or ‘entrenched’ poverty according to the Melbourne School of Law. Reasons stated include low income, social security dependence, illness and disability.

Regardless of the data, the stigma persists. Thirty-three per cent of survey respondents said that they thought the primary cause of unmanageable debt was due to a lack of self-control, while 22 per cent nominated extravagance or greed.

The research showed that respondents tended to be critical, rather than sympathetic. The majority, 65 per cent, agreed that people who became bankrupt were bad at managing their money.

As a registered bankruptcy trustee firm, we’ve helped people from all walks of life and varying circumstances to deal with their debt. One thing I have learned in my nearly 30-year career in insolvency is that we are not all as immune to falling on hard times as what we may like to think. I’ve seen countless scenarios where people’s financial situations have flipped 180 degrees due to unforeseen circumstances and despite their best efforts, they just couldn’t recover. I also know that after bankruptcy, people do go on to live financially stress-free lives and build their finances and credit-ratings back up over time.

So, although the shame and stigma around bankruptcy may still prevail in the minds of some, the reality is that Bankruptcy is an option that aims to give people a fresh start when they need it most.

Andrew Aravanis

Andrew is the founder and Principal at Aravanis, one of the largest registered bankruptcy trustee firms in Australia.

Aravanis offers free bankruptcy-related information that’s specific to your individual situation.

If you’re considering bankruptcy, give Aravanis a call on 1300 369 108. As one of Australia’s leading bankruptcy firms, they can take you through the options that might be available.

 

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