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James Kirby
March 29, 2009
PEOPLE are not paying their bills. Worse still, they are not paying the bills that matter. A survey from credit ratings agency Dun and Bradstreet shows people are less likely to pay their mortgage than their Foxtel bill.

At first glance it looks as if people have got their financial priorities wrong, but Christine Christian, Dun and Bradstreet chief executive, says the results are a wake-up call as to just how bad things are getting for many consumers. They pay what they can and the mortgage bill is just too big.

It’s the oddest thing: there’s the stockmarket enjoying a “bear market rally” and heading for its best monthly performance since 1988. At the same time the Reserve Bank of Australia is saying we will be insulated from the worst of the global downturn. But behind the scenes consumers are struggling and the banks are falling over each other to send in the debt collectors.

Since January the number of referrals from lenders to debt collectors is up a shocking 42 per cent, compared with the same period in 2008: It’s one of those signals that tells you what is happening.

Moreover, people closest to the situation such as Christian are concerned that the level of bill defaults is going to get worse, not better, with the success of the first home buyers’ grant. The new grant package, which triples the subsidies for first home buyers, is due to terminate on June 30. “We’re seeing artificial demand for new homes, a rush before the grants run out, but will these people be able to pay their bills?” Christian asks.

Though the reduction in interest rates has eased the fear of bad debts in the banking system, history shows that rising unemployment is a key motivator of financial stress. Personal insolvency, for example, goes up directly in proportion to unemployment levels. Our unemployment rate is rising — it’s 5 per cent and with job lay-offs being announced daily many economists expect it will hit 8 per cent before reaching a peak.

A second new survey — from the University of Melbourne — says unemployment is the biggest cause of bankruptcy. Once upon a time bankrupts were often business people who had somehow seen their enterprises go off the rails. Today the level of “non-business bankruptcy” is rising: the statistics are populated with people closer to the Isla Fisher character in Confessions of a Shopaholic, that is someone between 25 and 34 who simply spends too much. The difference between life and the movies is that being chased by credit card companies and debt collectors is not funny.

We’ve recently seen some notable bankruptcies, including that of Mimi Macpherson, sister of former supermodel Elle, who declared herself bankrupt at Christmas, owing $300,000.

And then there’s Matthew Perrin, the former supremo of surf gear company Billabong, who is bankrupt following failed ventures in China for $28 million (including $1.6 million owed to the bookmakers!).

But forget the celebrity bankrupts: you may not believe this but one in 20 bankrupts go under with “unsecured debts” of less than $2000.

What on earth will happen now that we are officially entering a recession?


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