Debt agreements not just a 'quick fix' says broker

by Mackenzie McCarty26 Feb 2013

The term ‘debt agreement’ is enough to make many brokers run for the hills. In proposing a debt agreement, clients commit an act of bankruptcy – and creditors can use this to apply to court to make the debtor bankrupt if the proposal isn’t accepted by creditors.

Roger Mendelson, CEO of Prushka Fast Debt Recovery, is an outspoken opponent of debt agreements, telling Australian Broker they constitute no more than a bottom-of-the-barrel option for debtors ‘in deep’ and possibly facing legal action.

“Debt agreements are made pursuant to Part IX of the Bankruptcy Act and are recorded on the debtor’s credit file for five years and will be recorded on the ITSA [Insolvency and Trustee Service Australia] data base – which is a public record.”

Furthermore, he argues, the debtor will find it ‘almost impossible’ to get credit during the term of the agreement.

“…For the rest of his life, he will face the question on credit forms ‘have you ever entered into an arrangement pursuant to the Bankruptcy Act?’ He will need to answer this honestly and this will always be a black mark.”

This, however, is where things start to get interesting.

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  • 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.


  • 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) ITSA Debt Agreement Consequences ITSA Bankruptcy and Debt Agreement Comparison Table ITSA Debt Agreement Process