If you have a client that’s struggling with spiralling debt, bankruptcy may seem like their best option. But while bankruptcy can give them a ‘fresh start’ by releasing them from some unsecured debt, it has serious long-term financial and personal repercussions. These may include:
- A permanent record on the National Personal Insolvency Index and the Bankruptcy Register
- A negative credit report listing for five years
- The loss of high-value assets such as homes, cars and tools
- Passports being surrendered
- Compulsory income contributions (depending on income earned)
Your clients may be able to avoid bankruptcy if they negotiate with their creditors before the debt spirals completely out of control. This can be done informally, as well as through Part IX Debt agreements and Part X Insolvency agreements.
Creditors are often willing to reach informal debt and hardship agreements with clients that are struggling to pay their bills. They may offer them more time to pay their debts, payment holidays, or freeze interest for a period of time. This should buy your clients more time to get back on their feet again. However, as they aren’t legally binding, creditors can change their minds.
Part IX Debt and Part X Insolvency agreements
Your client can enter into a legally binding arrangement with their creditors whereby both parties agree to reduce the existing debt to a more manageable sum. The debt then needs to be paid back in regular instalments over a set period of time. In most cases, interest on the debt is also frozen.
However, both agreements are considered “acts of bankruptcy” and therefore come with similar consequences. These include the agreements being noted on credit reports for five years.
So what’s the best solution?
As a broker, you know just how important credit reports are. As informal debt agreements don’t impact credit reports, they can be a great first step to your clients getting financially fit again.
However many people aren’t comfortable negotiating with creditors by themselves. Partnering with Credit Repair Solicitors can help you solve this problem for your clients. Email firstname.lastname@example.org or call 1300 158 731 to find out more.