Being caught in debt can be a terrifying experience that may incorrectly appear unresolvable. There are many options for debt resolution, and it is a case of finding the right solution for your situation. It is always a good idea to talk to your creditors and ask if they will help you. If you only have one creditor you may be able to come to an agreement with that creditor for you to pay a lesser amount over a period. If you have many creditors, it can be difficult to muster them into one agreement. This is where a Debt Agreement can help as all creditors are bound by the decision of the creditors who vote for the Debt Agreement. If your financial problems are severe you may need to consider bankruptcy which allows you to reset your finances and start again, importantly without the debt you just cannot pay.
To assist you to work out how to best resolve your debt, we provide a summary list of options available to you:
1. Talk to your creditors – ask if they will give you time to pay. If you only have one creditor this can be a good strategy. It works best if your agreement is reduced to writing. For some creditors like banks, you may be eligible under their hardship program and organise a moratorium on payments for a few months.
2. Negotiate with your creditors – for you to pay a lesser amount over time as full and final payment. This can be difficult to do if you have many creditors. It can be hard to get all creditors to agree in writing to the same agreement.
3. D.O.I.- Apply to the Australian Financial Security Authority (AFSA) for protection from creditors for 21 days. This will stop creditors from being able to bankrupt you and is called a Declaration of Intention to Present a Debtors’ Petition. We recommend that you do not apply for this protection unless you need protection as it only lasts 21 days and you are only able to apply for it once.
4. Propose a Debt Agreement – a Debt Agreement (DA) is a legally binding agreement with your creditors. A Debt Agreement proposal must be approved by AFSA and your creditors (50% in value of creditors who vote). If you obtain a DA, your creditors are unable to commence bankruptcy proceedings or debt collection activity against you whilst the DA is in place.
5. Propose a Personal Insolvency Agreement (PIA) – A PIA is a legally binding agreement with your creditors. A PIA must be approved by your creditors, and this requires you to attend a meeting of your creditors. If you obtain a PIA, your creditors are unable to commence bankruptcy proceedings or undertake debt collection activity against you whilst the PIA is in place.
6. File for Bankruptcy – your creditors are not involved and have no say regarding your filing for bankruptcy. Bankruptcy can be a circuit breaker releasing you from most, if not all, your debts. It can give you a fresh start and the opportunity to create foundations for healthy finances as you go forward in life.