During the last quarter of 2014, the Australian Financial Security Authority reported that personal insolvency incidents were down an astonishing 8.1 per cent compared to a year prior. This decline has been driven by a number of factors including lower unemployment rates leading to fewer financial hardships for Australian families and individuals. However, some still face issues with their credit management and due to multiple delinquencies or rapid changes in financial standing, they are in need of alternatives to clear their debt. In recent years, people have been choosing debt agreements over bankruptcy when they are seeking help getting out of deep credit problems.
Debt Agreement Over Bankruptcy
Debt agreements were introduced to the public in 1996 and are different to bankruptcy in a number of ways. First, a debt agreement is a formal agreement between the borrower and his or her creditors which provides alternative repayment terms that are meant to be more manageable to the borrower. Individuals who have struggled to keep up with debt obligations for an extended period of time are given the opportunity to enter into a debt agreement with their lenders. This agreement states that a certain amount will be repaid over time in order to clear the debt, and interest is frozen during that time frame. A debt agreement results in a much lower total amount repaid, and the remaining balance is written off by the creditors.
Many Australians struggling with their financial position are choosing a debt agreement over bankruptcy because it is viewed more favourably by future creditors as borrowers are assumed to have taken responsibility to pay back the debt owed. Additionally, although it is a formal act of declaring oneself insolvent, it does not bear the same consequences as bankruptcy. Instead, individuals who chose a debt agreement over bankruptcy are not restricted in travel as they would be with bankruptcy, nor is there a yearly assessment of income through a trustee. Also, a debt agreement does not require an individual to forfeit all rights to assets as would be the case in a bankruptcy filing.
Selecting a debt agreement over bankruptcy proves to be beneficial for borrowers who are in over their heads when it comes to repaying mountains of credit. Instead of the harsh consequences and long-term negative credit reporting that goes hand in hand with a bankruptcy filing, individuals utilizing a debt agreement can achieve a better result and clear their debt in a more positive manner.