The Best Way to Escape Debt: Debt Agreement vs. Bankruptcy?

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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 Part 9 Debt Agreements and bankruptcy.

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, every situation is unique. There are no one-size-fits-all solutions. 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, to talk to an industry expert about your unique situation, please contact our experienced team now.

What Happens 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. When you declare bankruptcy, you’ll begin a process where your assets may be seized and you’ll have some very strict limitations.

It’s true that bankruptcy will relieve some of the burden that your debts are bringing to your life, but 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.

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 it  is distributed to creditors.

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 also comes with a long-term impact. Bankruptcy will be visible on your credit report for only 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. However, it’s important to realize that bankruptcy will have a significant impact on your life not only in the present but also moving forward in the future.

What Happens When You Enter a Debt Agreement?

There are many benefits of debt agreement over a bankruptcy. With a debt agreement, a new payment plan is created that suits both you and your creditors.

This means you can pay your creditors a regular payment that’s affordable for you while satisfying the needs of your creditors. 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.

Another important difference is that with a debt agreement, you can keep your assets. However, similar to declaring bankruptcy, your credit rating will be impacted for 5 years. You’ll also be listed on the National Personal Insolvency Index as well, but only for 5 years (bankruptcy is lifelong on the NPII). While it will be difficult to borrow from new creditors during this time, it’s a good opportunity to stop your reliance on credit cards and personal loans.

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

Which Option Is Best for You?

Again, there’s no cookie-cutter answer to which option is best for you. You’ll need to take a close look at your financial situation and goals to consider which suits you.

Here are some factors to consider before deciding on an option:

  • Type and amount of debt – The type and amount of debt matter for which options are available for you. A debt agreement only applies to unsecured debts, like credit card debt. You’re also limited to just how much debt you can claim under a debt agreement. On the other hand, there are fewer limitations with bankruptcy, allowing for a more comprehensive solution.
  • Earning amount – How much you make also matters. With a debt agreement, there are no limits to how much you can earn, but you do need to be making enough to cover your repayments. However, there’s an earning threshold for filing bankruptcy. Any money you earn over this threshold will be transferred to your creditors.
  • Business – Do you operate a business? There are several restrictions that prevent you from operating a business if you’re also filing for bankruptcy. There are fewer limitations if you’re seeking a debt agreement.
  • Car ownership – With a debt agreement, there are typically no restrictions to the number of cars you can own, though you’ll need to keep making payments if you owe money on your car. If you file for bankruptcy, your car is at risk of repossession to help pay for your debts.

By giving thought to these factors above, you’ll see which option is a better fit for your situation. When it comes to a debt agreement vs bankruptcy, you have to consider how much your life will be impacted by your choice.

Debt Agreement Vs Bankruptcy: Which Is Best?

In the battle of debt agreements vs bankruptcy note that both affect your financial status. 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.

When it comes to understanding your unique situation, 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. We have over 15 years of experience helping Australians manage their debt with confidence.

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