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.”