When it comes to Filing for Bankruptcy in Australia, there are a lot of choices that we get given depending upon who we are, who we speak to, and what exactly has gone wrong. One of the most common confusion I see with Filing for Bankruptcy is when it comes to choosing between Debt Consolidation, Personal Insolvency Agreements, and Bankruptcy itself.
Should I consolidate my debts?
When it comes to Filing for Bankruptcy in Australia, a lot of the info you receive on this issue will reflect the interests of the advice giver. Therefore, if you call a debt consolidation provider, I can promise you they will tell you to consolidate your debts. The debt consolidation business is a multi-billion dollar industry making money in one very simple way: charging you a fee for helping you wrap each of your credit card and personal loans into a single neat and tidy package.
I hate to tell you this but these guys won’t be doing it free of charge. Please do not misunderstand me: if you believe your financial troubles in Australia may be fixed by paying less interest, then go on and investigate the possibilities. Even a little amount of interest saved over years easily adds up.
Normally I find if you read this blog you’ve undoubtedly attempted to consolidate your debts already and come to the following realisations like these:
- Your credit rating is not good, and your credit file already has defaults on it so not a single person will give you a loan, consolidated or otherwise,.
- By the time you work it all out, you’re so far down a hole that saving on a bit of interest just won’t make a great deal of difference,.
- You’ve probably gotten to the stage where you’ve had more than enough, you’re emotionally burnt out, you can’t go on one more day ignoring blocked calls on your phone, ignoring the demands in the mail and so on.
Personal Insolvency Agreements.
So when it relates to Filing for Bankruptcy in Australia, what’s the huge difference between a Debt Agreement and a Personal Insolvency Agreement?
Freedom is the main thing Personal Insolvency Agreements (PIA) have in their favour. They’re also administered by a registered and – may I add – regulated trustee featuring the government trustee ITSA, and not a private agency that advertises on TV. Basically this process resembles Debt Agreements (DA): The trustee holds a meeting with the people you owe money to and these experts mediate a deal on your behalf. You can give a lump sum settlement figure or enter into a payment plan, or you can offer them assets instead of cash. This might sound fine when it comes to the troubles with Filing for Bankruptcy– that is until you discover that one of the obstacles with PIA’s is that 75 % of the people you owe money to need to agree on the deal. If they do not, your proposal is rejected or will need to be renegotiated.
Generally people you owe money prefer all their money back in addition to interest. Sometimes they’ll go for less than the amount you owe them – it’s typically a percentage of the debt– but allow me to stress this aspect: because of all the variables involved in the negotiation process to put together a PIA its difficult to put a figure on what the people you owe money to will actually settle for.
In most cases you’ll have to pay back 100 % of the debt owed. This is not just because your creditors are greedy or have a mean streak, it’s because the administrators take 20 % of whatever is decideded upon with the people you owe money to. That applies whether you use a private company for this process or ITSA, the government body setup to administer to these PIAs.
When it comes to Filing for Bankruptcy and insolvency I’ve heard of creditors choosing less 80 % on rare occasions, but that usually only occurs with a public company entering into receivership owing huge sums of money (the kind that makes the news). If you are were owed $10million and you know the people who owe you the money have a team of smart lawyers and some very clever structures in place and they offer 5 % of the debt, you might take it and be grateful. Sadly, ordinary punters like you and me in Australia aren’t going to get that lucky!
If you would like to learn more about what to do, where to turn and what questions to ask about Filing for Bankruptcy, then feel free to call Bankruptcy Advice Australia on 1300 879 867, or visit our website: www.bankruptcy-advice.com.au/