Are you in debt and concerned? How to avoid Bankruptcy
Bankruptcy can be your best way out of financial strain, but it’s a last resort once all other avenues have been exhausted. Although your debt worries might feel overwhelming and unmanageable, there are ways to avoid bankruptcy and instead work towards clearing your debts.
It is always best to look at your informal options before approaching a formal option.
INFORMAL OPTIONS
Know and understand the debt you are in
Sometimes the hardest thing to do is to find out how much you owe. Especially if you have multiple debts weighing you down with passed due dates and new looming ones, keeping track of everything can make the stress worse than it needs to be. Here are some steps to help you: -
• Get a copy of the most recent statement from all of your lenders.
• You can set up a budget – there are a lot of apps available to help, and example is Money Smart’s budget planner
• Understand how much interest you are paying.
Talk to your creditors
While this might be a daunting step, it can be very helpful. If you have had an unexpected event happen in your life, then your lender might be able to help you out by
• Giving you more time to pay your debts;
• Give you a lower interest rate;
• Look at altering their penalties; or
• Help you with a hardship program
Hardship Program
A hardship program is offered by lenders to help you come to an arrangement with them while you are in financial hardship. When approaching the lender to discuss hardship you should
• First work out how much you owe, and how much you can afford to pay. It wouldn’t be helpful to offer an amount you can’t pay or maintain.
• Contact the lender via phone or letter or email, and ask for the team that works in financial hardship.
• Keep a record of the conversations and correspondence you have with the lender, such as date, time, name of the person who helped you and what you agreed to.
Debt Consolidation
This might be an option to enable you to consolidate your debts into one new debt. This can help with the fees and charges by only having to pay one. You will need to understand the interest rates, the charges and fees, and whether they require security (such as your house or car). It might be beneficial to talk to someone before you enter in this agreement so that you make sure you understand before committing to potential more and higher debt than before.
FORMAL OPTIONS
Temporary debt protection (TDP)
This option provides you with urgent temporary relief from creditors chasing the debts for 6 months. This will give you time and space to get help and make a decision about the debts owed.
Debt Agreement (DA)
This option is a legally binding agreement between you and your creditors to pay an amount to settle the debts. This amount can be by lump sum or payment arrangement. There are restrictions on how much debt and assets you have to be eligible for this option.
Personal Insolvency Agreement (PIA)
This is also a legally binding agreement between you and your creditors to pay an amount to settle the debts. It can be paid by lump sum or payment arrangement. There are no restrictions on how much debt and assets you can have to be eligible for this option.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.
