Is A Debt Agreement Better Than Bankruptcy?

Is A Debt Agreement Better Than Bankruptcy?

When debt becomes severe a serious debt solution may be the only way out. Many people believe that bankruptcy is the only option in such cases, but there are other alternatives that should be considered.

Debt agreements are considered acts of bankruptcy under the Bankruptcy Act 1966, but do not have as far reaching implications as bankruptcy itself, which in most cases has the most negative impact on credit rating.

Here is a quick overview of the consequences of both a debt agreement and bankruptcy:

Bankruptcy

Remains on credit file for a seven years. Recorded on National Personal Insolvency Index.

In some cases, may not be required to pay back any of debts to creditors. You do not need to seek approval from creditors to file for bankruptcy.

May lose some of your assets, and experience difficulty traveling. Obligatory yearly assessments of income.

No requirements or limitations on income, debt, or assets, making bankruptcy a more readily available option in some cases.

Debt Agreement

Remains on credit file for a minimum of 5 years, or more if the agreement last longer. Recorded on the National Personal Insolvency Index.

Provides financial relief in the form of frozen interest rates and affordable repayments. Legal action ceases on unsecured debts. You still pay back some of what you owe.

You keep all of your assets, and do not experience some of the other negatives of bankruptcy, such as travel restrictions and yearly assessments of income.

Debt agreements have restrictions such as income and minimum and maximum debt amounts, and so are not always an available option. In the case of ineligibility bankruptcy may be the viable option.

Which Is The Better Option?

It all depends on your specific situation, which is why debt consultations are a wise idea if you are experiencing debt problems. Generally speaking a debt agreement is preferable, if the option is open to you and you meet the requirements. You are still required to pay back some of the debt you owe, but the consequences are less extensive than bankruptcy.