March 30, 2015
A Qld Debt Agreement company has been referred to the Australian Financial Security Authority (AFSA) for allegedly misleading vulnerable persons through advertisements dispensed at ATM machines.
The “dodgy” advert pushes Debt Agreements as an alternative to bankruptcy and promises “no dodgy quick fixes, costly loans, no obligations, a solution and no more stress”.
A Debt Agreement is a formal alternative to bankruptcy however there is an argument that most debtors rarely end up better off by entering into one.
Not only do debtors have to pay the often exorbitant fees of a Debt Administrator, but they are also required by the Agreement to repay most of the outstanding debt, usually over a 3 – 5 year time frame, which is longer than the vast majority of bankruptcies.
And despite all this effort, the debtors’ credit rating is ruined.
The Consumer Action Law Centre referred the case to AFSA, because of its concerns that the advertisement targets people at their most vulnerable time. It was also concerned that the advertisement was misleading those in need by making promises that are simply not true. So let’s take a look at what the fuss is about.
A Debt Agreement is a formal alternative to bankruptcy that operates under Part IX of the Bankruptcy Act.
While a Debt Agreement allows a debtor to compromise and discharge outstanding debts, they do;
Entering into a Debt Agreement is an act of Bankruptcy and as such, if a debtor fails to complete the agreement, creditors can move towards bankruptcy immediately.
Under a Debt agreement, the debtor is required to pay a substantial proportion of their income towards their outstanding debts. Such payments are not required in bankruptcy unless certain income levels have been exceeded.
This means, bankruptcy is often a better alternative for people with a limited income as all their earnings can be directed towards food, rent and other day to day living expenses rather than toward the repayment of old debt.
Considering the above, one might ask why would anyone enter into a Debt Agreement.
Perception! People believe Bankruptcy to be something that it’s not.
So let’s examine some of the things people believe about bankruptcy that are not true.
In bankruptcy as in a Debt Agreement, credit rating is negatively impacted. Equity in major assets such as a house will be taken or accessed for the benefit of creditors.
So what is the benefit of a Debt Agreement? According to the promoters the benefits include;
As in bankruptcy, there is generally no effect on employment.
If after considering the above, a person still wishes to pursue a Debt Agreement, they must qualify for the process by having;
If a debtors’ position exceeds the above, they may be eligible Personal Insolvency Agreement. As with a Debt Agreement, a PIA is also a formal alternative to personal Bankruptcy but for people with greater levels of income, assets and debt.
This story highlights a sad fact – people are vulnerable when they are experiencing financial difficulties and while there are many organisations wishing to do good, such as the Consumer Action Law Centre and The Insolvency Experts, there are many more that look to profit from your weakness.
No matter how difficult the financial situation, you have options that are available to you, but it is up to you to seek the truth and proper advice and assistance. When you are in trouble, the most important thing you can do is gather information, be critical of that information and consider all the alternatives in order to determine which course of action will be best for you.
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.