Warning of worse to come as record number go broke
A record number of 2,777 personal bankruptcies was recorded last month, a figure 7.63 per cent higher than the number for September, the Official Receiver's Office said yesterday.
Personal bankruptcies for the first 10 months of the year have now passed the 20,000 mark - triple the 6,886 recorded for the same period last year. A total of 9,151 cases were recorded for the whole of 2001.
Economists yesterday warned that the worst was yet to come and legislators called on the government to consider tightening the bankruptcy laws to stop debtors abusing the system.
Bankruptcy orders granted by the courts in the first 10 months reached 20,204.
A spokesman for the Official Receiver's Office said the economic downturn had increased the number of bankruptcy petitions by debtors.
Bankruptcy applications also passed the 20,000 mark for the year last month. During the first 10 months of this year, a total of 22,370 people applied to the court to be declared bankrupt, more than double the 10,005 recorded in the same period last year.
A total of 2,421 people applied for bankruptcy last month, up 13 per cent from the previous month.
Bankruptcy applicants must submit a petition to the court and may need to wait several months before it is approved.
Some analysts point to the link between the economic downturn and rising bankruptcy figures.
'My central forecast is that the unemployment rate will continue to go up,' said Dick Li, an economist at Goldman Sachs. 'You can see the . . . correlation between bankruptcies and the unemployment rate.'
The unemployment rate in September stood at 7.4 per cent, slightly lower than the record 7.8 per cent in July.
'Whether bankruptcies will go up or go down totally depends on the economic outlook,' said Mr Li.
'The economic outlook right now is totally driven by exports, which is uncertain given the disappointing business survey by the OECD [Organisation for Economic Co-operation and Development]. If export recovery loses momentum, the unemployment rate could go up again.'
Democratic Party economic spokesman Sin Chung-kai said the record bankruptcy figures showed a need for a review of bankruptcy laws.
The bankruptcy law amended in 1998 reduced the restriction period covering bankrupt persons from seven years to four years.
The period restricts travel and running a business.
'The shortened restriction time has been seen as a reason to encourage debtors to go bankrupt to avoid repaying debts,' Mr Sin said. 'This would be a good time to review whether there is a need to tighten the regulation to avoid abuses.'
Democratic Alliance for Betterment of Hong Kong financial affairs spokesman Chan Kam-lam also called for tougher laws to prevent people resorting to bankruptcy 'as an excuse to solve their personal debt problem'.
But both Mr Sin and Mr Chan said they were also concerned about the social consequences of debt, such as suicide and family problems.
The Official Receiver's Office spokesman said there was no need to change the law.
'The existing bankruptcy restriction period is by no means less stringent than other jurisdictions such as Australia, Canada and Britain. We do not consider it necessary to increase the period, which would not solve the present problem of consumer debt and bankruptcy,' the spokesman said.
He said present bankruptcy legislation had built-in mechanisms against abuses. Creditors could call on the court to extend the period of automatic discharge to a maximum of eight years.
Graphic: BANK16GET
