Your Debt Solutions: What’s Available?

Not every financial situation is the same. When you reach out for financial aid, it’s your right as a client to be aware of all the possible outcomes, and how each of these would be beneficial or detrimental to your financial future. Majority of financial and credit counsellors will offer the following solutions to help you get out of debt.

The below solutions should only be considered when you have explored all other options. You have tried negotiating with your creditors and applied for a hardship variation, if eligible, but you are simply unable to keep up with your repayments.

 

The top five strategies for moving towards a debt-free life.

Debt Negotiation

The thought of negotiating your debt with creditors can be overwhelming; a financial consultant can guide you through this process and determine a payment plan that is manageable for you. If eligible for this strategy, you may be able to reduce and eliminate debt by paying a lump sum amount that is lower than what you currently owe without suffering the consequences of formal arrangements as debt agreements or bankruptcy. A financial consultant can also contact the creditors and negotiate a settlement amount for the outstanding debts that is fair for all parties.

Honesty is vital in any debt negotiation; you must be honest and realistic when establishing future repayments. Don’t ignore the phone calls from private numbers and throw threatening letters in the bin, take action of your debt today.

The longer you don’t take action, the more troubling your financial situation can become. As the debtor, it is your responsibility to take control of the situation.

 

Informal Debt Agreements

An informal Agreement is an arrangement between you and your creditors that is not legislated under the Bankruptcy Act. This is an alternative available to people who have experienced exceptional circumstances like unexpected illness or injury rather than financial hardship directly originated from amassing substantial consumer credit liabilities or lateness in payments. With an informal agreement, your consultant will contact the creditors on your behalf and work out a debt repayment that suits you both. The most important aspect is that all interest, fees and charges can be frozen for a set period of time, giving you the chance to take control of your finances. Whilst this type of agreement is ‘informal’, it is still drawn up by solicitors. This ensures that your creditors cannot go back on it once signed; an informal debt agreement is a great alternative that will eliminate the stress from your creditors, providing you meet the special requirements.

 

Formal Debt Agreements

A formal debt agreement, also known as a Part IX debt agreement, is an ‘act of bankruptcy’; this is not the same as going Bankrupt. A Debt Agreement is an alternative to Bankruptcy that comes under the Part IX of the Bankruptcy Act, therefore, proposing a Debt Agreement is considered an act of Bankruptcy.

A Debt Agreement will stop your financial matters from getting worse and give you the opportunity to start reducing your debt. A debt agreement is one of two formal agreement options designed to avoid Bankruptcy that are available for people who are insolvent.

By setting up a debt agreement, your consultant will create a repayment plan that you can afford and often reduce the percentage of your combined debt to be paid over a three (3) year period (in certain circumstances, 5 years). The main positives of a formal debt agreement is that, if accepted, the interest on all debts will be frozen during the term of the agreement, and once the agreement is completed and all obligations satisfied, creditors cannot recover the remaining percentage they are owed.

A Debt Agreement is a great alternative to bankruptcy, especially for those with assets, as it allows people to retain their assets while settling their unsecured debts. Additionally, a Debt Agreement is not recorded permanently on the NPII.

 

Personal Insolvency Agreements

A personal insolvency agreement (PIA) is an agreement between you and your creditors that is legally binding. PIA’s, also known as a Part X (10), can often be a practical way to come to an agreement to settle your debts and avoid filing for bankruptcy. A personal insolvency agreement is one of two agreement options available to people who are insolvent. However, unlike Part IX agreements, PIA’s are administered by a trustee who will examine your financial affairs and, in turn, make an offer to your creditors; this offer may pay your debts, either partially or in full, via instalments or a lump sum. A PIA is a great option for those who do not meet the eligibility requirements for a Part IX debt agreement.

Similar to a formal debt agreement (Part IX), it is still an act of Bankruptcy, and will also affect your credit file for 5 years, however, unlike the Debt Agreement a PIA will leave a permanent notation on the National Personal Insolvency Index (NPII).

 

Bankruptcy Proceeding

Bankruptcy can be defined as the process in which you are legally declared as unable to meet your debts. Only declare bankruptcy when you have explored all other options with your financial consultant. It’s the financial consultant’s job to assess your individual circumstances and present you with different avenues of debt relief including Bankruptcy. The term bankruptcy may frighten you, but it is not the end. You will be assigned a trustee to take charge of looking after your affairs during the term of your bankruptcy. Credit reporting agencies will keep a record of your bankruptcy for either 5 years from the date you became bankrupt or, 2 years from when your bankruptcy ends, whichever is later. There will also be a permanent notation on the NPII. National Personal Insolvency Index (NPII).

The consequences associated with declaring bankruptcy are to be taken seriously, talk to us to help you decide if this is the best option for you, otherwise, click here for more advice.