A recent report by Financial Counselling Australia (FCA) reveals that strata bodies are now forcing Australians into bankruptcy at nearly the same rate as the Australian Tax Office, while private schools are increasingly using bankruptcy to recover unpaid debts.

The report found that the number of forced bankruptcies is rising, with the proportion of creditor petitions resulting in bankruptcy tripling over the past six years to 40 percent. Many Australians have been declared bankrupt over debts as small as $10,000, often inflated by legal and interest fees.

“Forced bankruptcy is one of the most serious tools available to creditors and should only be used as a genuine last resort,” FCA Chief Executive Dr. Domenique Meyrick said. She warned that without stronger safeguards and updated laws, Australians risk losing their homes and livelihoods over relatively modest debts.

While big banks and debt collectors have largely reduced bankruptcy actions in recent years, other creditors are filling the gap. Strata bodies accounted for 12 percent of all bankruptcy cases in 2024-25, equal to non-bank business lenders and only slightly below the Australian Tax Office at 13 percent, up from just 2 percent in 2020-21.

In one instance, a woman suffering PTSD, anxiety, and depression from a violent relationship faced a $10,400 claim from her strata, mostly composed of legal fees and interest, though she eventually avoided bankruptcy with help from friends.

The FCA is calling for strata bodies to provide hardship assistance and limit aggressive legal actions against residents. “Forced bankruptcy is most common in sectors without strong consumer protections or rights to hardship support and fair dispute resolution,” Meyrick said.

Private schools are also contributing to the rise, accounting for 2 percent of all cases last financial year, with almost half of those originating from five Victorian schools: Sirius College, Oakleigh Grammar, Overnewton Anglican Community College, Trinity Grammar School in Kew, and Wesley College Melbourne.

The FCA recommends enshrining hardship assistance in all sectors lacking protections and suggests raising the bankruptcy threshold from $10,000 to $20,000. Meyrick described these reforms as “practical and achievable,” aimed at ensuring bankruptcy remains a genuine last resort and creating a fairer, more consistent system.