Struggling Aussies increasingly turning to debt agreements

by Mackenzie McCarty18 Jan 2013

Australians experiencing severe debt problems are increasingly turning to debt agreements over bankruptcy, with a recorded increase of 68% in debt agreement numbers since 2007.

Insolvency and Trustee Service Australia (ITSA) figures show bankruptcies declined 20% between January 1, 2007 and December 31, 2012, with 150,353 bankruptcies recorded during this period.

During the same time frame, however, there were 49,034 new debt agreements made, representing a 68% increase.

Reforms to the Bankruptcy Act in 2007 in the form of the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007, aimed to improve the operation of the debt agreement regime.

Attorney-General Nicola Roxon says debt agreements provide better outcomes for someone’s financial circumstances, and may allow those people in debt the chance to save their home.

“Debt agreements in many cases can be the smarter way forward, especially as bankruptcy can leave a financial legacy that can affect people for years.”

But CEO of MyCRA Credit Rating Repair, Graham Doessel, says it’s important for consumers to know that both options are part of the Bankruptcy Act 1966, and therefore when proposed or implemented record a bankruptcy notation on the consumer’s credit file.

“A formal debt agreement may be a nice form of bankruptcy, but make no mistake – it is still part of the Bankruptcy Act 1966. Both options will impact a consumer’s credit file and ability to obtain credit for seven years. But what’s more, the debtor will be allocated a bankruptcy number, which remains part of their credit history for life.”

The debtor’s name and other details appear on the National Personal Insolvency Index (NPII), a public record, for the proposal and any debt agreement.

 “You can’t get away from this notation, and answering the question ‘Have you ever been bankrupt or entered into a debt agreement?’ incorrectly constitutes fraud.”

From March, 2013, the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 will take effect, allowing for greater ease of request for financial hardship variation.

However, Doessel says it’s important for people not to bury their head in the sand, and to recognise and address financial difficulty early.

“By catching it early and avoiding a default, writ, judgment or bankruptcy on your credit file, when you’re back on your feet you could have the option to borrow again.”




  • by Edgar 18/01/2013 9:57:50 AM

    It's any wonder so many people get bad advice to go into these sort of agreements when even the Attorney General gives the impression that debt agreements won't affect your credit rating like a traditional bankruptcy. And they are promoted so much lately, I see at least two or more adverts each night on TV ..."Have you got more than $8,000 debt we can help.....". I had one client recently who'd gone into a debt agreement where she paid out the debt over five years, she was discharged from it two years later than if she had gone bankrupt and paid nothing back. Effectively by paying the debt instead of wiping it off she ended up worse as it was an additional two years before main stream lenders would even consider her

  • by Richard 18/01/2013 10:45:55 AM

    I own a micro lending business as well as a home loan broking business. I always wish clients would talk to me before entering into a debt agreement. I would advise them to go bankrupt before a debt agreement. However the best strategy is to enter into an arrangement with creditors, not a debt agreement for the reasons Graham Doessel outlines in the article. I will always stop charging interest and will accept as little as $10pw. Most creditors will enter into an arrangement so long as the person does what they say. They would be far better to see an accountant to work out a budget and repayment strategy and for the accountant to contact and make an arrangement with creditors. From the creditor's perspective, a small regular payment is better than bankruptcy and receiving nothing. The important thing for the client is to act before it is too late and too hard.

  • by JacK 18/01/2013 11:28:00 AM

    Whilst there is a legitimate place for debt arrangements in any civilized society, encouraging consumers to enter into Debt Agreements or Bankruptcy (as is evident in Australia) disclours the moral & ethical obligations of people to fulfill what was promised by them i.e. 'repay what you owe'. What kind of society are we promoting by encouraging people to 'go bankrupt'? A sick one, I might suggest. The moral bankruptcy rests with those companies promoting this malpractice. Are you listening Fox Symes !!!