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At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.

Who is Becoming Bankrupt

Wednesday, September 01, 2010 - Posted by Philip Harvey

Statistics for this were obtained from the ITSA website. 

What are your experiences on your ledger concerning age and occupation of  bankruptcy ? 

Your comments in the new forum below will be greatly appreciated. 

1/ Bankruptcy by Age 

Debt Agreement Bankruptcy 

Age Group      

     Debt agreement 
(part 9)

  bankruptcy 

 Under 25

 12.8%    

 5.9%

 25 to 34

 37.3%

 18.7%

 35 to 44

27.5% 

 27.3%

 45 to 54

 16.9%

 24.9%

 over 55

 5.5%

 23.2%


2/ Causes of Bankruptcy 

 Overuse of credit

25.25% 

 Unemployment

 32.7%

 Domestic Discord

 11.49%

 Ill Health

 10.9%

 Adverse Litigation

 3.93%

 Gambling or speculation

 6.45%

 other

 9.28%



3/ Occupation of people filing for Part 9 agreements. 

Management 

5.5% 

 Professionals

 10.8%

 Assoc Professionals

 10.00%

 Tradesperson

 9.6%

 Clerical/service

 41.00%

 Transport

 4.8%

 Laborers

 10.1%

 Other (unemployed,spouses)

 8.2%


A couple of brief observations :
1/ The difference in the type of bankruptcy used by age.
2/ Unemployment is not the biggest cause of bankruptcy.

Early Release of Superannuation

Sunday, November 01, 2009 - Posted by Philip Harvey

The early release of superannuation can be an effective way for a debtor to clear their arrears and get back on track with their mortgage.  Both ASIC & APRA have some basic requirements that need to be met before superannuation is released.

When reviewing these requirements, you will note that a Credit Card / Personal Loan is not included. Also of note is that an investment property / second property is not included.

ASIC Requirements:

Incapacity 


Requires the debtor to contact the superannuation fund. The debtor may also be paid a 'non-commutable' income stream during a period of temporary incapacity (debtors won't be able to get a lump sum in the case of a temporary incapacity). 

Severe financial hardship 

Requires the debtor to contact the superannuation fund. If the rules allow early release of benefits, you must satisfy the trustee that you have been receiving a Commonwealth income support payment for a continuous period of 26 weeks and you cannot meet your reasonable and immediate family living expenses. 

Compassionate grounds 

Requires the debtor to contact the superannuation fund. If the rules allow early release of benefits, the 'compassionate grounds' are set out in the law. 
Compassionate grounds involve medical treatment for serious conditions that is not readily available through the public health system, transport for medical treatment, changes to a home or vehicle because of a severe disability, palliative care, funeral and burial expenses, or to prevent the forced sale of your home by your mortgagee. 

APRA Requirements:

Medical treatment 

To help pay for medical costs, for you or your dependant, required to: 
- treat a life-threatening illness or injury; and/or 
- alleviate acute or chronic physical pain; and/or 
- alleviate an acute or chronic mental condition 
provided that the treatment is not readily available through the public health system and is not covered by any applicable private health insurance and/or Workers’ Compensation. 

Medical transport 

To assist with the cost of transportation to and from medical treatment, for you or your dependant, when that treatment is required to: 
- treat a life-threatening illness or injury; and/or 
- alleviate acute or chronic physical pain; and/or 
- alleviate an acute or chronic mental condition 
provided that the transport is not readily available through the public health system and is not covered by any applicable private health insurance and/or Workers’ Compensation. 

Mortgage assistance 

To prevent your home from being sold by the lender with whom you have the home’s mortgage. 

This ground does not include rent, or making payment on a mortgage: 
- for which you expect to have difficulty paying in the future (but are not yet in arrears); 
- for which you are in arrears, but not to the extent that the lender has decided to sell; 
- for which one of your dependants, other family member or friend is liable; or 
- that is for a second or investment property. 

The substantiation required from the mortgagee (lender) to satisfy APRA's requirements may be set out in a single letter or document or in separate letters or documents. Providing mortgage account details and BSB numbers will also enable funds to be directly deposited to the mortgage account once they are released by the superannuation fund. Documentation from mortgagees (lenders) must be clear about the mortgagee’s (lender’s) intention to continue or commence enforcement action. Using phrases such as “may proceed”, “may be entitled to commence”, or “reserve the right to proceed” is not considered sufficient to meet the requirements of the 
legislation. The legislation requires that the mortgagee (lender) must state that if the borrower fails to pay the overdue amount, the mortgagee (lender).

LCollect can issue a Mortgage Default Notice on your behalf which satisfies the requirements for superannuation to be released under this category.

Modifications to your home and/or motor vehicle 

To pay for modifications required to accommodate special needs if you or one of your dependants has a severe disability 

Funeral assistance 

To assist with funeral, burial, cremation and other expenses related to the death of a dependant. 

The deceased person must have been reliant on you financially, domestically or personally on you: it is not enough that the person was a family member. 

Care for terminal medical condition 

To provide care for yourself or your dependant if you or your dependant is dying from a terminal medical condition. This kind of care is often referred to as “palliative care”.

APRA Statistics for the Early Release of Superannuation

Sunday, November 01, 2009 - Posted by Philip Harvey

You will note a downward trend for 2008/09 which can be directly attributable to the sharp decline in interest rates during the period.                                                                       
   
  

Financial year  

 Number of 
applications received

Applications 
approved 
in part or full  

Amount 
approved 
for release 
$  

Average amount 
released 
per application 
$

2003/04*

11,504

8,558

55,459,704

6,480

2004/05*

11,818

9,764

77,680,070

7,956

2005/06*

15,027

12,754

120,842,292

9,475

 2006/07

18,245

15,412

156,905,338

10,181

2007/08*

20,524

14,947

 173,602,110

11,615

2008/09

17,918

11,776

144,739,434

12,291

*Revised figures.

Debt Collection & APRA Provisioning Guidelines

Thursday, October 01, 2009 - Posted by Philip Harvey

The effectiveness of your organisations Debt Collection has a direct impact on the Provisions for Bad Debts your organisation must make. Provisions for Bad Debts are expenses to your organisation that can add up very quickly and can threaten the profitability of your organisation on a poor performing ledger.

As a collector, have you ever completely understood why you are sometimes put under intense pressure to reduce the arrears, order new valuations and consequently, reducing the required provisioning? By summarising the APRA Provisioning Guidelines (Guidance Note AGN 220.3) below, we hope to increase your understanding. Please take note that your own organisations provisioning guidelines may be different to the APRA Guidelines (ie more conservative). 

The provisioning guidelines are divided into 4 categories based upon the associated risk of each Loan Type, being;

  1. Category 1 - Well-Secured Facilities,  including;
    • a residential fully mortgage insured registered 1st mortgage,
    •  a residential registered 1st mortgage where the loan balance is less than or equal to 80% of the property value (without mortgage insurance) Note: Where the exposure is 90 days or more worth of payments past due, and the valuation must be no older than 12 months
    • a residential registered 2nd mortgage where;
      •  the value 1st mortgage + the value of the 2nd mortgage is less than or equal to 80% of the property value and the first mortgage cannot be extended without it being subordinated to the second mortgage OR
      • the value 1st mortgage + the value of the 2nd mortgage is between 80 & 100% of the property value and the first mortgage cannot be extended without it being subordinated to the second mortgage AND the outstanding balance is 100% mortgage insured
  2. Category 2  - Registered 1st Mortgages on residential properties where the total loan balance (less any component that is mortgage insured) is between 80% - 100% of the property value (where the loan is 90 days or more worth of payments past due, the valuation must be no older than 12 months).
  3. Category 3 - Personal & Commercial Loans (Secured & Unsecured) and mortgage loans where the Total Loan balance less any mortgage insurance is greater than 100% of the Property Value. Please note that APRA do also allow some exemptions which can be applied for in this category.
  4. Category 4 - Overdrawn Savings Accounts and Overdrawn Limits on credit cards, overdrafts and line of credit facilities.

The % of the Total Loan Balance that must be provisioned per APRA Guidelines is determined by the number of days in arrears the borrower is in meeting contractual obligations. The categories & percentages are outlined below;

                                            % Provision Required by Category

# Days in Arrears Cat 1 Cat 2 Cat 3 Cat 4
0-13 Days 0% 0% 0% 0%
14-89 Days 0% 0% 0% 40%
90-181 Days 0% 5% 40% 75%
182 - 272 Days 0% 10% 60% 100%
273 - 364 Days 0% 15% 80% 100%
365 + Days 0% 20% 100% 100%

You can see as a Collector how the performance of your arrears ledger will have on your provisioning when you apply the above matrix.

For Category 1 & 2, the guide mentioning a valuation that is not older than 12 months becomes important. For example, if you had a category 1 loan without mortgage insurance that was more than 90 days in arrears without  a valuation performed in the last 12 months, this would Default to be a Category 3 loan. Lets attach a loan value of $100,000 to this example, this means that instead of having a provision of zero, a provision of $40,000 would be required, going straight to your organisations bottom line. 

Another important consideration for your Category 1 (& somewhat category 2) Loans is the potential consequence of doing nothing when an account is in arrears. We have seen examples of case law where due to inaction / slow action of the lender that has lead to excessive interest & fees being accrued against the loan, the Courts reversing these excessive amounts in favour of the borrower. The key point to remember is though your provisioning is not impacted, if your lack of action is to the financial detriment of the borrower, the Court may award in favour of the borrower for the amount of the financial loss suffered from the lack of action.

The full APRA Guidance Note (AGN 320.3) can be located on the APRA Website.



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