Debt agreements not just a 'quick fix' says broker

by Mackenzie McCarty26 Feb 2013
Malcolm Bartely, director of finance brokerage B Debt Free, says the idea of bankruptcy being the blackest of financial fates is outdated and that the stigma surrounding the term has actually begun to fade.

“When faced with the alternatives, most people accept the idea of being prevented from accessing traditional credit for a number of years. They understand that there are in fact many lenders who will consider lending them more money on the basis that their debt agreement is re-paid in the new funding...The younger generation generally are less concerned about what other people think than the older people in our community.”

Mendelson says the growing popularity of debt agreements (according to the ITSA website, a record 2,510 of debt agreements were recorded in the December quarter, 2012) can largely be attributed to heavy promotion by the likes of Fox Symes.

“It can sound tantalising to someone under pressure. The changes made several years ago which provide that the promoter must get paid on the same basis as other creditors has made a big difference in that they are much less inclined to recommend debt agreements if they think that it has a good chance of falling over.”

But Bartley says the ‘changes’ Mendelson is referring to ‘simply sidestepped’ the regulation by insisting upon upfront fees paid before lodgement and says they’ve in no way reduced the number of debt agreements being processed. Judging by the figures above, he has a point.

Nevertheless, Mendelson maintains that debt agreements are nothing but a ‘quick fix’ for desperate debtors and says visiting an accountant or debt counsellor ‘would probably be much cheaper and has less risk’.

“Breach of a debt agreement constitutes an act of bankruptcy, allowing any creditor to then issue a creditor’s petition to make the debtor bankrupts. If there are only a few creditors, a good first step is to call them and offer to pay by instalments. Most will accept this but will react harshly if the agreement is breached.”

Bartley, for his part, agrees that ‘quick fix’ options are not always the best solutions, but says there's still a valid argument for recommending debt agreements to certain clients.

“Unfortunately, this is what our industry is doing: Quick re-finance to non-conforming, converting unsecured debt to secured and costing astronomically more in interest and fees. A correctly processed debt agreement is not a ‘quick fix’.”

 

 

 


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COMMENTS

  • by Edgar 26/02/2013 10:47:52 AM

    I can't see why anybody would go into a debt agreement over bankruptcy in the first place. Lenders view it as harshly as bankruptcy and because the terms of payment, say over five years, may be longer than the term of a bankruptcy it can effect your ability to get credit longer. Until lenders start to view debt agreements less harshly (at least the person is making an effort to pay) then the only winners from debt agreements are the likes of foxsymes

  • by Malcolm Bartley 26/02/2013 12:03:42 PM

    Edgar your comments are understandable and reflect the current attitude of most brokers and financiers... Yes a formal bankruptcy might be the right decision for one client but a Debt Agreement maybe a better option for another. It wholely depends upon the individual circumstances.
    There are a lot more people through life circumstances that are now needing the assistance of DAP’s due to loss of income and downturn in the economy – there are also many people who are accessing DAP’s who have mortgages to their limit and bankruptcy is not an option – a DAP is a legal and binding way to insure you can make an offer to pay off existing debts and keep the roof over your head, which would appeal to many people.
    Financiers staff dealing with clients considering entertaining a DAP need to be fully conversant with the regulations and understand the impact on individual clients. Until this happens we dont expect any change in the "Harshness" you refer to.

    regards

  • by Graham Doessel - MyCRA Credit Rating Repairs 26/02/2013 12:48:39 PM

    Debt Agreements can be good if your specific circumstances dictate it BUT almost every single person that has contacted us desperate to have us remove the Debt Agreement from their credit rating has told us that they did NOT know it would affect them this badly..

    Many consumers that applied for a Debt Agreement (and were rejected so never even went through with the Debt Agreement) have also contacted us looking for relief as they never for a minute imagined they'd have bad credit from something they never actually did... Only to still be labeled as a Bankrupt...

    The legislation allows that the mere application is enough to record the Debt Agreement act of Bankruptcy on your credit rating for a minimum of 5 years... THIS IS JUST PLAIN WRONG...

    Most people in my opinion that enter into Debt Agreements DO NOT understand the implications and have NOT had the implications and lifetime lasting NEGATIVE effects described in a way that would allow them to make a genuinely INFORMED decision.

    Most people have never even heard of the “NPII” let along know that the NPII records the act of Bankruptcy for your ENTIRE LIFETIME...

    Unless you need to:
    ~ Leave the country
    ~ Be a Company Director
    ~ Be seen as being the major decision maker of a company
    ~ be a share holder
    ~ or a very few other points like these...

    Then in my opinion, there is absolutely NO BENEFIT to entering into an expensive Debt Agreement over a full blown Bankruptcy as the Debt Agreement will most likely remain on your credit file for longer than the full Bankruptcy AND you'll still be locked into paying the debts for many years...

    I fail to see the benefits of a Debt Agreement over Bankruptcy for the majority of consumers...

    A few handy links for brokers and consumers about the consequences of Debt Agreements and other information from 'ITSA' (Insolvency and Trustee Service Australia)

    http://bit.ly/ZwlRO0 ITSA Debt Agreement Consequences

    http://bit.ly/ZFeB6q ITSA Bankruptcy and Debt Agreement Comparison Table

    http://bit.ly/Yx3bie ITSA Debt Agreement Process