What Is the Difference Between Bankruptcy and Debt Agreement?
Bankruptcy is one action you can go to if you are insolvent. You are insolvent if you are unable to meet your financial obligations when they become due. In its most simple form is a legal process set out by the laws of Australia that releases a person or business (sole trader) from almost all their debt obligations. It applies to a person or business (sole trader) and both are governed by legislation promulgated by the Australian parliament.
In Australia, Bankruptcy is governed by the Bankruptcy Act of 1966 with subsequent amendments as gazetted by parliament. The Australian Financial Security Authority (AFSA) governs all insolvencies.
Types of Bankruptcy:
If a person or business concludes that they are not financially viable to service their credit obligations, they have the option to declare themselves insolvent. as many costs and legalities can be contained by acting early.
This is a process whereby you apply to be declared bankrupt, and this process will be governed by an appointed trustee. This process is deemed by some to have the most beneficial outcome.
The person or entity with whom you are a creditor can petition to have you declared bankrupt if you fail to keep to the terms in that agreement. The amount owing to them must be more than $5000 and the petition needs to be presented to the Federal Court of Australia.
What Is A Debt Agreement?
The AFSA defines a debt agreement as a legally binding agreement between the debtor and creditors. The terms set out in this agreement can include but are not limited to:
- The amount agreed to be loaned by the creditor to the recipient.
- The payment terms
- The instalment amount
- The time period
- Any movable or immovable assets that can be attached as security in the case of defaults.
Some people and businesses that are in financial distress consider debt restructuring options via new Debt Agreements, which is discussed below as a possible alternative to Bankruptcy.
There are other options to Debt Agreements, contact Andrew from Bankruptcy Advisory Centre to discuss what is best for you.
What Is the Difference Between Bankruptcy and Debt Agreements and Why Each Option Could Make Sense?
If you came to the point where your personal or business debt obligations can no longer be met (insolvency), then it means you need to consider alternatives to help remedy the situation as soon as possible.
You can either consider Bankruptcy or revised Debt Agreements. Let’s explore each option to help you gain a better understanding as to what your options could be.
Bankruptcy as mentioned above is a legally dictated and governed process that makes it explicit as to which steps need to be taken when and which decisions are to be taken at the sole discretion of the appointed trustee.
The trustee will evaluate your liquidity and try to sell as much of your assets. The proceeds raised through all sales will then be distributed to all your creditors that are owed. The aim is to get as much liquidity to service as much of your debt as possible which means that creditors are not guaranteed full payment.
Debt Agreements (Possible Alternative To Bankruptcy)
Debt agreements as mentioned earlier is an agreement between the person that is lending the money and the party that provides the money lent. AFSA does mention that Debt Agreements can be seen as an alternative to Bankruptcy.
How it would essentially work is that a willing creditor can re-enter into a new Debt Agreement with the delinquent debtor. A new contract can be drawn up with terms both agree to.
The benefit herein is that the creditor is more likely to know that they will receive their money back albeit at a lower return. This is more beneficial when compared to the sale of assets by a trustee in a bankruptcy process where credits are legally bound to accept the return the trustee was able to derive. Those outcomes are sometimes worse than a simple debt restructure.
The delinquent party owing the money will also stave off the unfavourable credit rating implications that Bankruptcy might bring. It also helps remedy the business relationship between the two parties which is potentially the best reason to consider as an option.
As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.
For Ross, it’s important to see the people behind the financial problem –not just numbers.
Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.
The unit she & her husband live in is not owned by them, but subject to a 20-year lease.
The money to be repaid by the management was due only at sale, when the client finally left the retirement village.
Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.
Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.
The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.
The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.
The moneys paid represented about 75% of what would have been available to creditors if they waited two years.
It is a win for the client and for the creditors.
I made an appointment with Andrew after finding him on google. I was nervous and apprehensive about what to expect but he made the process of bankruptcy extremely uncomplicated and stress free, allowing myself the opportunity to get the fresh start I was so desperate for. Thank you Andrew I could not recommend you enough.
Making the decision to go bankrupt was not easy however once I had spoken to Andrew i felt all my anxiety disappear. Andrew does not judge you and he has an innate ability to put you at ease. He took care of the whole process for me again reducing the stress involved with completing paperwork.
Thank you very much.
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Andrew was a steadying hand with his advice.Showing that things aren't as bad as first thought nor any obstacle insurmountable. If you have questions needing answers, Andrew is the person to ask. Thanks for your advice Andrew.
Andrew was very knowledgeable, caring, helpful and compassionate when I went and saw him. He made me feel that I wasn’t the loser and failure that I thought I was being. Even down to the box of tissues on the table.. which I needed. Highly recommend to go see Andrew if your struggling. There is life after!
Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.
Don't hesitate contacting Andrew, I was stressed, struggled sleeping through debt. Andrew put me at ease. He listened to my situation and we decided on my next move. Andrew is professional and easy to talk too. I would recommend highly to anyone who wants help to give him a call. I appreciate your support Andrew. Regards Brett.
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Andrew was prompt, organised, friendly and efficient with the processing of my documents and made everything very simple for me so I didn’t need to deal with the added pressure and stress. Thank you Andrew for allowing me to start afresh and getting it done within a matter of weeks.
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