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Alternatives to Bankruptcy
Find out the Alternatives to Bankruptcy
The most common fear that people who are struggling with debt have is that of bankruptcy and the negative consequences that go with it, such as the social stigma, or losing one’s assets. What many people do not realise is that there are alternatives to bankruptcy that can halt the progress of spiralling debt before it gets to that stage.
Your first lot of options are informal arrangements. These can include consolidation loans to make your existing debts easier to manage, or hardship arrangements with your individual creditors. To enter into a hardship arrangement you must apply with each of your creditors and outline your financial situation to them.
ALTHOUGH INFORMAL DEBT ARRANGEMENTS USUALLY DON’T LEAVE
A MARK ON YOUR CREDIT FILE, THEY ARE NOT LEGAL ARRANGEMENTS,
MEANING THEY CAN BE CANCELLED AT ANY TIME
They will then assess your situation according to their internal guidelines and, if approved, they may put a stop to payments for a few months, or freeze the interest on your debt for a period of time. These arrangements are designed to help you through difficult periods, and when the hardship arrangement is over your payments and interest rates will return to normal. An informal arrangement should not mark your credit file, but it is important to remember that it is not permanent, and the banks are not legally bound by it (i.e. they can change their mind at any time).
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If your situation has progressed beyond the stage where an informal arrangement will help, you might need to look at your “formal” options. These are called Part IX Debt Agreements and Part X Personal Insolvency Agreements. These arrangements were designed by the government to help those people who are genuinely struggling with debt, but not so badly that they have to declare themselves bankrupt.
Debt Agreements and Personal Insolvency Agreements are essentially legally binding payment arrangements. They consist of a proposal that is put to your creditors in which you will pay a certain amount every week/fortnight/month for a set number of years (usually between 3 to 5). Out of this money that you pay into the arrangement, your creditors will each receive a return that is proportionate to the amount that they are owed. In the majority of cases this is less than 100% and the interest on the debt is frozen. Once you have completed your end of the agreement any remaining debt is legally written off. And whereas with an informal arrangement you must get the approval of each of your creditors individually, once a Debt Agreement or a Personal Insolvency Agreement is accepted by the majority of your creditors, they all become legally bound by it.
There are some differences between the two agreements which you can read about here. Though to ensure you have all of the important information, it is best to speak to a professional debt advisor. Here at Debt Free we are fully trained and licensed to offer both Debt Agreements and Personal Insolvency Agreements, and can give you clear and concise advice on which arrangement would be best suited to your particular circumstances
Call one of our personal debt advisors today on 1800 676 598.
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Australian External Dispute Resolution Scheme:
Financial Ombudsman Service Limited
GPO Box 3
Melbourne VIC 3001
Phone: 1800 931 678 (free call)