Debt agreement or bankruptcy

Declaring bankruptcy is a very serious situation that can carry unpleasant consequences long after the initial filing occurs. While some assets are protected, others may have to be sold. Limitations will be imposed on job opportunities and travel outside Australia. One’s credit history will reflect this action for 7 years during which time acquiring new credit may be severely impeded, and interest rates will be significantly higher. Avoiding bankruptcy is definitely preferable if at all possible, and there are several alternatives from which to choose.

The most obvious approach is to readjust the personal spending budget so that it becomes possible to pay off all outstanding debt in a timely manner. This may mean restricting some lifestyle choices and becoming as frugal as necessary, postponing additional debts until the financial picture has improved. It is possible to appeal to individual creditors for a personal hardship release that will temporarily freeze interest, late charges, and/or monthly payments. In some cases, an informal agreement will allow extra time before resuming a lowered or extended payment schedule. However, if several creditors are involved it may be difficult to come to terms with as many of them as is necessary to be able to avoid becoming bankrupt.

Debt consolidation is another approach. By placing all debts into one personal loan, the single monthly payment is usually less than the sum of all the individual ones. The new interest rates are also lower. However, there may be additional handling charges levied by the loan provider, and there will be some damage to the credit rating. Mortgage refinancing is also a possible way to make an excessive debt load more manageable.

Debt agreement offers a legally binding, affordable compromise between the creditors and the consumer. Once signed by all parties, interest rates are frozen, and more affordable payments are assigned. Certain income and debt limitations apply, and the same legal action must not have been repeated in the last 10 years.

A Part X Personal Insolvency Agreement is much like a Debt Agreement except that the financial guidelines are higher. A controlling trustee will be appointed to manage the negotiations with creditors. Sometimes a retaining fee is charged up front. Usually the agreement is a payment schedule for 3-5 years after which the consumer is considered to be debt free. However, choosing either of these legal agreements includes being permanently listed on the National Personal Insolvency Index.

Finding a qualified financial counsellor is the best first step in deciding how to avoid bankruptcy and holding open the door for a restored financial future.

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