Whether it’s for buying furniture, a car, or a home, the majority of Australians have used debt. For most, repaying debt is a formality, but for others who cannot manage their debt, it can be the first step on the slope to bankruptcy. Fortunately, alternatives are available.
Insolvency in Australia
The Australian Financial Security Authority (AFSA) regularly publishes statistics on insolvency. The latest report showed that in 2014-15, 17,163 Australians became bankrupt, 10,911 entered into debt agreements, and a further 214 into personal insolvency agreements. The data shows a trend toward debt agreements, with AFSA recording that debt agreement activity reached its highest level on record in 2014-15, whilst bankruptcy activity is on the decline.
Media advertisements would have us believe that the best way to beat debt is to establish a debt agreement. But is this the case?
What are debt agreements?
Debt agreements allow debtors to freeze interest payments, and consolidate multiple debts into a single bundle with one regular payment. To be eligible, debtors must have a net income of less than $1,547.70 per week, have unsecured debts of less than $107,307.20 and assets up to the same value. Furthermore, applicants cannot have been an undischarged bankrupt nor had a debt agreement in place over the previous ten years.
Some benefits of debt agreements include:
- halting legal action including bankruptcy proceedings,
- allowing debtors to be directors of corporations, and
- permitting the retention of assets.
However, debt agreements can be costly to prepare, and even after one has been established, creditors are not obligated to accept its terms.
Other options available include:
- Private agreements with creditors – negotiate directly with creditors to arrive at mutually agreeable terms. Debtors have the right to seek hardship variation terms which may involve extending the loan term or freezing payments.
- Personal insolvency arrangements – similar to debt agreements but less costly and more prohibitive. These agreements allow more tailoring of the terms and conditions of the agreement, and do not require debtors to satisfy income, asset and debt eligibility criteria.
- Bankruptcy – the final step for debt management, although the Official Receiver has the option to refuse the petition for a bankruptcy if certain conditions are not satisfied. Bankruptcy can also have career consequences, with bankrupt individuals unable to hold company directorships, and face exclusion from professional organisations.
The options discussed in this article are often those of last resort. Sometimes we just need someone else to look at our position and offer professional guidance to get us back on track. If you’re struggling, talk to a licensed financial adviser on (07) 3040 4840 who can give you direction on regaining control over your finances. Or you can visit www.debtselfhelp.org.au. This website has some excellent tools to give you a tailored assessment of your options.
There is help close by.
The advice on this site may not be suitable to you because it contains general information that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Please also refer to our general advice warning under contact us tab on our website. The article is based on information available at the time of writing only and therefore care should be taken as to the accuracy of the content.
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