If you are drowning in debt, then you owe it to yourself to carefully consider any options before filing for bankruptcy. If you are like most people, it is hard to think of a way to decrease your debt load outside of choosing this option. After all, payment obligations that go unfulfilled lead to poor credit scores, which ultimately lead to a bankruptcy solution.
Debt Agreements – An Option to Bankruptcy
Part IX of the Debt Agreement of the Bankruptcy Act of 1966 offers an alternative to bankruptcy and is a legally binding contract between your creditors and yourself. A debt agreement allows you to offer a sum to creditors that is based on what you can afford to spend. Free From Debt debt agreements, if accepted, can be used to pay back a debt, via a lump sum or periodic payment plan. Therefore, they offer a way to settle unsecured debt.
The agreements are generally submitted by an administrator, who is a registrant of the AFSA, or the Australian Financial Security Authority – a governmental department that legislates debt agreements between administrators and bankruptcy trustees. The department has been established to legislate Australia’s personal insolvency system.
Benefits of Debt Agreements
There are a number of benefits associated with debt agreements. If the agreement is accepted, any interest or unsecured debt is frozen. Legal action and collection activities cease on unsecured debt. If the agreement is accepted too, the signator is released from all unsecured debts after they have been paid. Payments are based on affordability, which makes repayment easier.
Some of the Drawbacks
The impact of choosing this debt option will affect your credit rating for at least five years, or until the agreement has been completed. The party’s name is recorded on Australia’s National Personal Insolvency Index or NPII. In addition, parties to debt agreements pay a certain percentage of their debts back, which means strict adherence to a budget. Creditors, by law, can choose or not choose to agree to a proposal for a debt agreement. Parties to debt agreements must disclose all their income, assets, and debts when making a proposal as well.
The Advantages and Disadvantages of Bankruptcy
When you consider the pros and cons of debt agreements, you also want to look at some of the advantages of filing bankruptcy. If both your assets and income are below a specific threshold, then you may not have to pay your creditors. Also, you are not required to obtain approval from creditors if you opt for bankruptcy. People in Australia are generally bankrupt for three years; however, the time span may extend to eight years in some cases. For anyone who chooses bankruptcy, there are no debt, asset, or income limits set. However, you do need to be a resident of Australia.
While the above-listed benefits make bankruptcy seem attractive, you also have to consider the disadvantages. For example, some of your property may be sold in order to pay off creditors. However, you can still keep some assets. If you want to travel overseas, you must obtain permission from the bankruptcy trustee. A bankruptcy also affects a credit rating for seven years.
