Debt Agreements vs Bankruptcy: Which Is Right for Me?

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When debts get out of control and you feel like you’re on the brink of financial ruin, you have to carefully assess the options available to you. While bankruptcy may seem like an easy way out of a tough situation, the right debt agreement could also provide you with the financial relief you’re looking for. It’s important to know the differences between debt agreements vs bankruptcy.

It’s important to remember that no two people will ever have identical financial issues to deal with. Whether it be the cause of your debt, the amount you owe, the institution you owe it to, or any other factor. In effect, this means you’ll have to carefully choose the right path for your unique circumstances.

In order to help you make the most informed decision, we’ve laid out everything you need to know when it comes to comparing a debt agreement vs bankruptcy. However, if you’d like to speak with an industry expert and talk about your options in further detail, please contact our experienced team now.

What will it mean if you declare bankruptcy?

Declaring bankruptcy may seem like the easiest way to get yourself out of a financial nightmare, but the consequences can be severe and long lasting. You’ll begin a process where your significant assets may be seized and you’ll have some very strict limitations to abide by.

Bankruptcy will certainly take care of relieving some of the burden that your debts are bringing to your life, but be aware that not everything is covered under bankruptcy. You’ll have to continue to pay any court imposed penalties and fines, child support and maintenance obligations, and student loan debts. Failure to do so will likely land you in further legal and financial trouble.

After declaring bankruptcy, you’ll have a trustee appointed to oversee the management of your debts. This means that your trustee will own all of your property and be in control of how this is distributed to creditors. You also won’t be able to leave the country without permission from your trustee.

This is non-negotiable, so you shouldn’t consider bankruptcy if you have assets you wish to hold onto. Expect your properties, jewellery, stocks and shares, assets obtained as a gift from a will, money held in any financial institution, household fixtures and fittings of value, and any money that you are owed to be transferred to creditors by your trustee.

Bankruptcy will be visible on your credit report for 5 years, but it will stay on the National Personal Insolvency Index forever. During this 5-year period, you will probably be unable to acquire credit anywhere, but you will be able to earn a certain amount of money through work.

Despite all this, you can keep some of your assets, such as property that’s held in trust for another person, property that has a sentimental value, household goods and items, assurances and endowments, and some property of a spouse who hasn’t declared bankruptcy.

In addition, you’ll have the opportunity to contest decisions taken by your trustee by appealing to the Inspector-General, the Federal Court, or the Federal Magistrate’s Court.

What will it mean if you enter into a debt agreement?

A debt agreement is often thought of as a sensible alternative for people with unmanageable debt. In this situation, the agreement will determine a new payment plan that suits both you and your creditors. This means you can pay your creditors a weekly, fortnightly or monthly payment that’s affordable for you and it will satisfy them as well. Additionally, you’ll have all interest rates frozen so that this monthly repayment won’t spiral out of control and cause you to fall into further debt.

When it really comes down to it, most people will choose a debt agreement over bankruptcy because they will be able to keep their assets. Perhaps you have a car or mortgage that you want to keep hold of? Under a debt agreement, you can keep your assets and they won’t be affected at all.

Similar to declaring bankruptcy, you’ll have your credit rating marred for 5 years and be listed on the National Personal Insolvency Index as well, but only for 5 years (bankruptcy is lifelong on the NPII). It will be more difficult to borrow from new creditors during this time but it’s also a good opportunity to stop your reliance on credit cards and personal loans and create some new financial habits.

However, the biggest benefit of a debt agreement is that you will be debt free once the agreement comes to an end. This will help you to have a real fresh start without the stigma of bankruptcy hanging over you.

When it comes to a debt agreement vs bankruptcy, you have to consider how much your life will be impacted by your choice. Bankruptcy will certainly remove much of the financial burden you face, but it will also severely impact your life and possibly your future as well. A debt agreement will have you paying off debt for a number of years, but you’ll have much more freedom and retain much more of what you’ve worked for.

Speak with our experts today

We’re here to help! If you’d like to speak to an expert about declaring bankruptcy or arranging a debt agreement, please contact us now or alternatively, check out our Bankruptcy and Debt Agreement pages for more information.

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