What Alternatives Do I Have?
A lot of people tell me they want to pay their debts, they’ve tried hard to do so, but they can’t find a way out. This describes the situation I found myself in.
It is concerning, but I have had people tell me that some debt collectors try to exert emotional pressure to extract payment – suggesting that you are a bad person if the debt is not paid. You are not a bad person, you have just been caught in a tight spot.
What I have found is that as the financial pressure increases, other aspects of your life tend to also fall apart. You start to get sick more often, have trouble concentrating, difficulty sleeping and marriage problems start happening.
I recommend, before you make your decision on what you will do, take a step back and realise the pressure you are under. Then before you make a decision you first consider all available options.
You have three available options are;
- Debt Agreement
- Personal Insolvency Agreement (PIA)
I have already given you a good idea on how bankruptcy works and will now describe how Debt Agreements and Personal Insolvency Agreements work.
Debt Agreement Proposal
A Debt Agreement is a binding legal agreement between you and your creditors, under Part 9 of the Bankruptcy Act.
The people you owe money to (creditors) will agree to accept an amount per month, over a period of time and once concluded cannot chase you for more money.
Like bankruptcy, a Debt Agreement will be on your credit record for 5 years.
To initiate a Debt Agreement, the proposal is sent to the people you owe money to (creditors) and they can either accept it or reject it. If most of them accept it (ie: a majority of creditors in dollar value), then the Debt Agreement gets started and all of your creditors have to accept the arrangement.
Once you have paid all the money you are required to pay under the Debt Agreement, you are released from the monies you owe.
I am not a fan of Debt Agreements for the following reasons:
- You are not released from the monies you owe until you have fully complied with the terms of the Debt Agreement. This keeps the stress and financial pressure going into the future.
- The people you owe money to (creditors) can no longer charge you interest once you have entered into a Debt Agreement. BUT if you are unable to complete the Debt Agreement, all interest during the period the Debt Agreement has been going, re appears for you to have to pay in addition to the money you still owe your creditors.
- Debt Agreement companies employ salesman to talk to you about entering into a Debt Agreement. Their job is to sign you up and not work out what solution is best for you.
- There are no provisions in the legislation which provide a minimum amount you are to be left with from your wages – to make sure you can adequately live your day to day life.
- My observation is that people commit to monthly payments under the Debt Agreement which is more than they can afford.
- If you cannot complete the Debt Agreement, you are faced with having to go bankrupt which goes for another 3 years.
If you are considering a Debt Agreement, my tips to you are;
- Make sure you are left with adequate money to live on – so as the needs of you and your family are properly met. I recommend that you use the income protection amounts (see Wages, Super and Spending on this website) that bankruptcy gives, as a guide.
- Remember the person you are talking to from the Debt Agreement company is a salesman whose job it is to sign you up. Do not let them play with your mind and make you feel inadequate if you do not commit to a Debt Agreement.
- Do not sign up to a Debt Agreement that goes for more than 3 years. Remember, if you go bankrupt you will be released from all your debts covered by your bankruptcy and discharged after 3 years.
Personal Insolvency Agreement
A Personal Insolvency Agreement is a binding legal agreement between you and the people you owe money to (creditors), under Part 10 of the Bankruptcy Act.
To organise a Part 10 Agreement you have to appoint a Controlling Trustee to organise a meeting of the people you owe money to (creditors). You make an offer and if the meeting accepts your offer (ie: approved by a majority in number and 75% in value of creditors that attend the meeting) you then have a Personal Insolvency Agreement with the people you owe money to (creditors).
Like Bankruptcy and Debt Agreements, a Personal Insolvency Agreement will go on your credit record for 5 years.
Very few Personal Insolvency Agreements happen, they are not popular. I think the reason for this is that they are very expensive, you have the cost of the Controlling Trustee and the Trustee of the Personal Insolvency Agreement.
I would be hesitant to recommend a Personal Insolvency Agreement but do acknowledge in specific cases they may work. My reservations are;
- Personal Insolvency Agreements are expensive to put in place.
- Unlike bankruptcy, there is no protection to make sure you are left with adequate money to live on so the needs of you and your family are properly met. I recommend that you use the income protection amounts that bankruptcy gives as a guide (see Wages, Super and Spending on this website).
- Do not agree to a Personal Insolvency Agreement that goes for more than 3 years – that’s how long bankruptcy goes for.
- You are not released from the monies you owe until you have fully complied with the terms of the Personal Insolvency Agreement. This keeps the stress and financial pressure going into the future.
- If the people you owe money to (creditors) do not agree to your proposal, you still have the cost of the Controlling Trustee.
A hard choice to make….
Unlike bankruptcy, which releases you from your debts as soon as you become bankrupt and which is for a fixed term, Debt Agreements and Personal Insolvency Agreements do not release you from your debts until they are finalised, and can be for a period much longer than 3 years.
You are not released from your liabilities until all the terms of the agreement have been met. I have heard of people being stuck for up to seven years.
I recently heard of a lady who was paying $200 a week to her debt agreement team, and staying very poor as a result. She was even more upset when she found that many of those payments had gone in fees – to the tune of $7000 – rather than paying down her debt. She is now bankrupt instead.
If you over commit when entering into a Debt Agreement or Personal Insolvency Agreement and are not able to pay your day to day bills on time, resulting in defaults being placed on your credit record – your financial problems are not being fixed – they are being taken into the future. This is an important point that you need to be across.
If you are still trying to make up your mind as to what is the best solution for you and you are being pressured through the courts by people you owe money to (creditors), you can make a declaration of intention to present a debtor’s petition (for bankruptcy). This option offers temporary relief from your creditors (21 days) while you decide what you are going to do in the longer term.
If you decide you want to talk to me about going bankrupt, or cancelling an existing Debt Agreement or Personal Insolvency Agreement, and you would like me to help you with the paperwork, just call 1300 764 197 or email me email@example.com .