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Understanding insolvency (bankruptcy and Part IX debt agreements)
By Tammy May

Personal insolvency has been rising in recent years as more people  struggle with increasing amounts of unsecured debt.  Personal loans, credit cards and mobile phone bills are some of the most common culprits.

Many people find themselves in a position where they simply can't service their repayments, and bankruptcy or a formal debt agreement seem like the only option.

But many people don't understand how harmful these options can be. Companies that specialise in debt agreements and bankruptcy petitions often make them sound like quick fixes when in fact the consequences can be damaging and far-reaching.

That's why this week I want to take a little time to explain personal insolvency.

Understanding personal insolvency

‘Insolvent’ describes a person or company that has insufficient income and/or assets to repay their debts. In Australia, personal insolvency is overseen by the federal government through the Australian Financial Security Authority (AFSA, formally known as Insolvency and Trustee Service Australia – ITSA). AFSA administers bankruptcies and Part IX debt agreements.

Bankruptcy is a legal process that releases individuals or companies from their debts, but it comes with serious consequences. An appointed trustee has the power to determine the value of your assets and, if you are earning an amount that is over the income threshold, command part of your salary to compensate your creditors. Bankruptcy also excludes you from certain occupational roles and professions.

There would be a permanent record of your bankruptcy on the National Personal Insolvency Index and it would appear on your credit file for up to seven years. During that time you would not be able to get a loan. Even after the bankruptcy has ended, you may find that your access to borrowing is limited.

A Part IX debt agreement is more flexible than bankruptcy. It allows a petitioner to offer a reduced settlement amount to his or her creditors. As with bankruptcy, a formal debt agreement would appear on your credit file and your name would be listed permanently in the National Personal Insolvency Index. In fact, the consequences of a formal debt agreement are not dissimilar to bankruptcy.

That's why it's important to explore all of your options.

At MyBudget we pride ourselves in helping people avoid bankruptcy and formal debt agreements, but we also acknowledge that for some people insolvency may be the best option.

Our first priority is always to ensure that we help our clients investigate all of their alternatives so that they can make an informed decision. Statistically, we find that only about three per cent of clients are truly insolvent. The vast majority are able to pay their way out of debt through alternative debt solutions.

But what if bankruptcy or a Part IX debt agreement is your best option?

If you do elect to pursue bankruptcy or a Part Ix debt agreement, MyBudget has a team that specialises in administering insolvency petitions. Our insolvency specialists can relieve your stress and worry by liaising with your creditors and by taking care of all the necessary paperwork on your behalf.

And unlike companies who specialise in formal debt agreements and bankruptcy petitions, MyBudget's insolvency assessment service is independent and free.

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