A recent report from Financial Counselling Australia (FCA) reveals a troubling rise in bankruptcy cases, with the rate of creditor petitions resulting in bankruptcy tripling to 40 percent over the past six years.

The report highlights that bankruptcy, intended as a last-ditch option, has been declared for many Australians for debts as low as $10,000. These debts often include significant legal and interest charges.

Dr. Domenique Meyrick, CEO of FCA, stated, “Forced bankruptcy is an extremely serious measure for creditors and should only be employed as an absolute last resort.”

She cautioned that without improved protections and updated legislation, Australians could face unnecessary loss of homes and livelihoods due to relatively small debts.

Although major banks and debt collectors have largely stepped back from pursuing bankruptcy proceedings in recent years, other creditors have moved to fill the void.

Strata bodies made up 12 per cent of all cases in 2024-25 – the same as non-bank business lenders and only marginally less than the Australian Tax Office at 13 per cent.

In 2020-21, they made up just 2 per cent of cases.

In one example, a woman who was unable to work due to the PTSD, anxiety and depression caused by a violent relationship was pursued by her strata for $10,400 – much of which was legal fees and interest – although she was able to borrow from friends and eventually avoided bankruptcy.

The FCA has called for strata bodies to be forced to provide hardship assistance and limit the legal action they take against residents in their buildings.

“Forced bankruptcy is appearing most in sectors that lack strong consumer protections, including rights to hardship support or fair dispute resolution,” Meyrick said. 

“Put simply, it’s happening where safeguards are minimal.

“Practical reforms are urgently needed to ensure fairness and consistency in the system.”

The number of private schools pursuing bankruptcy has also escalated, up to 2 per cent of all cases last financial year – the same proportion as strata bodies in 2020-21.

Almost half of those matters were from five schools in Victoria: Sirius College, Oakleigh Grammar, Overnewton Anglican Community College, Trinity Grammar School in Kew, and Wesley College Melbourne.

As with stratas, FCA said hardship assistance should be enshrined in all sectors where the protections don’t currently apply.

It also made seven other recommendations for governments, including that the bankruptcy threshold to be raised from $10,000 to $20,000.

“These are practical, achievable reforms,” Meyrick said. 

“They would make the system fairer and more consistent, helping to ensure bankruptcy is used only as a genuine last resort.”