When you’re struggling with debt, it can sometimes seem as if bankruptcy is the only way out. In reality, bankruptcy is not the only solution and, in many cases, it’s not even the most appropriate option for the individual. Bankrupts may lose their home (if they own it), as well as face years of financial control by an AFSA trustee. In some cases they may have incurred debt which isn’t covered by bankruptcy (for example court fines or child maintenance arrears), so will still have significant repayments to make. Australian debt and bankruptcy law offers several alternatives to bankruptcy, which are briefly summarised below.
Also see this related Debt & Bankruptcy Law Blog Post: ‘Bankruptcy – What Does It Mean For You?’.
If you find that you’re falling behind with repayments to your creditors, seeking expert financial advice and contacting your creditors to suggest an alternative repayment method are essential actions. Informal agreements with creditors ensure you retain control of your financial affairs and do not suffer from the numerous sanctions and limitations imposed on a bankrupt.
To obtain some ‘breathing space’ in order to form a workable debt solution, debtors may apply for a DOI (Declaration of Intent) which forces creditors to suspend their debt recovery process for 21 days while debtors can decide how to proceed. In many cases, debtors can agree a debt agreement with their creditors. This is a legally binding formalisation and agreement of a revised payment plan. The agreement gives debtors control over how much they repay and prevents further recovery action being taken, provided it is adhered to.
Personal Insolvency Agreement (PIA)
This is similar to bankruptcy, but may mean that indebted persons retain more control over their assets. A PIA may be rejected by creditors if they believe they will get more of the debt repaid by demanding involuntary bankruptcy.
Formal debt and bankruptcy law proceedings should not be undertaken lightly, as they can place lasting limitations on a bankrupt’s employment choices, ability to take out credit and even opportunity to take a foreign holiday. If you’re finding it hard to manage, get expert legal advice to maximise the chances of getting the outcome you want.