Karen Go was nearly made bankrupt two years ago by the strata manager of her block of flats in Sydney’s east over nearly $20,000 in strata levies and legal fees.
She was one of 306 NSW residents, or more than one a week, who faced forced bankruptcy proceedings from strata debt between 2019 and 2023, a legal process that means they can lose their homes over debts as low as $10,000.
Sydneysider Karen Go was saved from bankruptcy over strata fees by her sister Wendy Lee. The pair are using pseudonyms.Credit: Edwina Pickles
The figures from the Federal Court, Federal Circuit Court and Family Court of Australia show applications by owners’ corporations to make individual owners bankrupt were about one in eight forced bankruptcy filings in NSW last year.
The issue has caught the attention of the NSW strata commissioner John Minns, while the federal government is considering raising the threshold for all personal bankruptcies to $20,000.
Go, who is using a pseudonym to discuss the matter freely, is in her 50s with a mortgage on a studio apartment in an older block. When she found herself out of work, her mental health deteriorated and she fell into arrears with her levies.
Go begged for time to pay, but was never offered a payment plan. She continued to pay her levies but did not realise that the strata management company was adding legal charges, other administration fees and applying her payments to those costs rather than her ledger with the owners’ corporation.
‘I was totally shocked because I thought I had a good relationship with them, everyone was polite, and I’d been paying.’
Sydneysider Karen Go
In mid-2021, the strata management company applied to make her bankrupt. By this time, the debt had ballooned to about $21,000, but only about $9000 was actually levies.
“I was totally shocked because I thought I had a good relationship with them, everyone was polite, and I’d been paying,” Go said.
The stress contributed to a deterioration in Go’s mental health until she ended up in hospital for six months, and her sister Wendy Lee, also a pseudonym, became her legal guardian.
“She’d been living without electricity for almost a year, the water was dripping because she couldn’t pay the water bills and there was nothing in the fridge. The only food I could see was one packet of on-sale chocolate cake mix,” Lee said.
“What was really distressing was the fact that [Karen] was paying whatever money she had left over from the little amount she was eating to make payments to strata, and it all just went to legal.”
Lee notified the strata management company about the hospitalisation and made a personal payment to bring the debt below $10,000, but more legal fees were added, and the company said it would push ahead with bankruptcy.
Lee sought legal advice but ultimately paid to clear the entire debt.
The court figures provided to the Herald show owners’ corporations (or strata management companies on their behalf) attempting to use forced bankruptcy against owners, but not whether they succeeded.
Who’s who in strata
- All the owners in a strata scheme automatically belong to the owners’ corporation (previously called the body corporate)
- The strata committee (previously called an executive committee) is elected by the owners’ corporation to help it make decisions for the scheme
- A strata manager or strata managing agent is a professional appointed to assist running of the strata scheme
In 2023, there were 47 applications in NSW, 11 per cent of all forced bankruptcy matters filed with the courts. The five-year average was 60 applications, 12 per cent of all bankruptcy filings.
It was higher in 2020 and 2021 when there was a backlog of bankruptcies that arose during the COVID-19 pandemic.
A Financial Counselling Australia analysis of court data suggests strata bankruptcy is particularly high in NSW and the ACT, as it was less than 5 per cent of personal forced bankruptcies in all other states and territories.
The organisation’s strata bankruptcy expert, Lody Stewart, said bankruptcy was being misused.
“It’s unjust and unfair. Essentially, strata managers are using a sledgehammer to crack a peanut,” Stewart said.
In one case outlined by Stewart, an age pensioner in NSW was widowed and left with a reduced income. She kept asking for a payment plan and being refused. A financial counsellor helped her apply for the Home Equity Access Scheme, a federal government-backed reverse mortgage, so she could pay the strata levies.
Despite being notified of the plan, the owners’ corporation pushed on with bankruptcy proceedings rather than wait a couple of months for the government to release the funds.
In another NSW case, an older man with cognitive difficulties inherited a flat outright, and was two years off being able to access the pension and the reverse mortgage scheme. Rather than arrange a payment plan, the owners’ corporation is suing him into forced bankruptcy over levy arrears.
In a Victorian case, a young woman bought an apartment using the government guarantee for first home buyers where she only needed to put down a 5 per cent deposit. She was hit with an unexpected $60,000 special levy and pursued with legal action, even though there was not enough equity to actually pay the owners’ corporation in the event of bankruptcy.
Stewart said any money raised through bankruptcy would first be used to discharge the mortgage, then pay the trustee in bankruptcy an average of $50,000, then secured creditors, and finally unsecured creditors including the owners’ corporation.
She added that debt collection options included garnishing wages or bank accounts, and seizing and selling belongings. In NSW, they could also obtain a writ of levy over the residential property for a sheriff to seize and sell it, which Stewart said was still less harmful than bankruptcy.
Minns, the strata commissioner, said he was consulting about potential reforms “in the interests of all owners in strata”. Sources close to government say changes could include improved information in levy notices, more options before debt recovery action, and dispute resolution for strata debt.
NSW Minister for Better Regulation and Fair Trading, Anoulack Chanthivong, said he would work with Minns on fairer rules. He said the government had already introduced a requirement for owners’ corporations to get at least two quotes for significant work, and expanded the mediation team within Fair Trading.
The Owners Corporation Network of Australia, which represents owners’ corporations, is backing reform. Executive director Karen Stiles said people in genuine hardship should be treated with more compassion.
“The current debt recovery process is skewed against them and towards debt collection and legal firms doing brisk business in this area,” Stiles said. “Many of these firms are related to the strata management company, so they’re feeding them business.”
But Brett Harrison, from Taylor Insolvency, said in a submission to a federal consultation on personal bankruptcy that in his 20 years’ experience, owners’ corporations generally had no other prospect of recovering unpaid levies, which was unfair to other owners.
He described one bankruptcy where there were only two units in the strata complex, and one owner was carrying all the costs, while the bankrupt owner had inherited the property from her grandmother, was on Centrelink benefits, had a drug habit and was uncooperative.
The federal Attorney-General’s Department was consulting over a proposal to increase the threshold to $20,000 and the timeframe for debtors to respond to 28 days. The consultation was last September, but the department is yet to release anything further.
The threshold was $5000 until March 2020 when it was raised temporarily to $20,000 and six months to respond, before it was permanently raised to $10,000 in January 2021.
Consumer groups including the Financial Rights Legal Centre, Consumer Action Law Centre and Financial Counselling Australia made a joint submission arguing the threshold needed to be $50,000, and the timeframe to respond should be 60 days.
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