Debt Agreement or Bankruptcy?

Many people who find themselves in debt weigh up the difference between entering into a debt agreement and declaring bankruptcy.  The debt relief choice you make will depend on your circumstances.

An option many people take before declaring themselves bankrupt is to enter into a debt agreement, which if completed will get them out of debt and keeps their name clear in the credit rating.

A debt agreement is a negotiated deal between you and whoever you owe money to on how you’ll repay your debts.  Some people choose this path because they want to pay their debts.

But the conditions of debt agreements sometimes do not relieve the stress of debt, particularly when the debts must be paid off quickly.  You may find that the level of your debt, relative to your income, and the repayments you will have to make will leave you strapped for cash and will tie you into debt repayments for another 3-5 years.  You may find that if the debt has to be paid off in three years, the debt repayments are so high that you will struggle to live comfortably, meaning more stress for longer.

In addition a person can’t propose a debt agreement if secured debts, assets and after tax income exceed specific thresholds, the amount of which is updated twice a year.

Added to that, your name will be recorded for up to seven years on the National Personal Insolvency Index  (NPII), a public register that anyone can access for a fee.  So your credit rating is affected and you may find it difficult to borrow in the future.

In 2011, there were 8125 new debt agreements in Australia.  By comparison, in the same period more than 23,000 people opted for bankruptcy as a way to recover from debt.  A reason for this is that once a person has declared bankrupt, the creditors and debt collectors can no longer pursue the recovery of your debts and effectively most debts are cancelled.

Debt Relief through Bankruptcy

Declaring bankruptcy means you no longer have to pay some or all of your debts.  It means that you no longer have to deal with creditors or debt collectors.

People sometimes avoid bankruptcy because they don’t understand the consequences or are unclear on the process and the impact it will have on their finances.

But bankruptcy can sometimes be the best option.   It will let you get out of debt, and give you the chance to start again, debt free.

When you declare bankruptcy, you are admitting that are unable to meet your debts and that you are insolvent.  A legal declaration to that effect must be made.

There are consequences to bankruptcy that you should make yourself aware of before making a final decision.  These include that your credit rating will be affected for 7 years, making it difficult to borrow, and you will remain a bankrupt for 3 years.   Your name will also be entered on the NPII.  Also, your secured debts like mortgage repayments will still need to be paid.

The Road to Debt Recovery

There is no shame attached to bankruptcy these days.  Many people are unfortunate enough to find themselves in unmanageable debt, so you are not alone.

It is a good idea is get advice from an experienced debt administrator who will be able to answer your questions, advise you about the best course of action and can guide you through the official processes.

Debt Agreement Solutions have helped thousands of Australians get their lives back on track and have a team of experienced debt administrators waiting to help you.   They can help you get on the road to debt recovery, fast and with no fuss.  Contact them today on 1300 653 962 or go to Debt Agreement Solutions

Declaring bankruptcy will require you to file a “Statement of Affairs” with the government and there are official procedures to observe.  You will be required to disclose all your details and debts in the Statement of Affairs and fines apply for inaccurate information.  Your debt administrator will assist you with this and make sure that you are on track.