January 16, 2015
If you are experiencing extreme financial hardship, there is no doubt you will be considering bankruptcy.
Firstly, it should be said that bankruptcy is about allowing a person in overwhelming debt to relieve themselves of the debt burden and to allow themselves a fresh start.
If you are experiencing overwhelming debt, or a level of debt you will never be able to recover from, then bankruptcy may be the most appropriate course for you.
To relieve yourself of the debt burden, you have choices. You may consider formal options that include bankruptcy or informal options for dealing with your debt.
Your informal alternatives to bankruptcy may include;
This option does nothing to deal with the debts you have as they will not legally disappear just through avoiding your creditors.
By making a choice to avoid your creditors, you are simply hoping that they will not take legal recovery actions that may include legally enforceable judgments, garnishees, writs of execution or even bankruptcy.
Just saying this, while avoiding creditors is not the most comfortable or effective way of dealing with debt, it is a valid strategy and it will work in many cases.
As a debtor you have the right to reach a private arrangement with individual creditors or the group of creditors.
A private arrangement may involve an agreement to pay a debt by installments or by a once only agreed lump sum that is accepted in full and final satisfaction of a debt.
Whatever the arrangement, the settlement should be evidenced by a Deed of Release for your protection.
While you may avoid some creditors, make installment agreements or settlements with other creditors, there will always be one or two creditors that do not accept your proposal.
And because you have chosen to deal with creditors informally, it means those more stubborn creditors are not bound to your proposals and therefore, they are still able to pursue their chosen legal recovery option.
If this occurs, you will need to find a way or satisfying the stubborn creditor or you may find yourself bankrupt. This may involve paying a stubborn creditor a higher return than you paid to others. It may also involve you making a formal application to have a court imposed installment agreement in response to any judgment obtained.
Formal alternatives to bankruptcy exist under the Bankruptcy Act and if the appropriate majority of creditors vote in favour of these arrangements, all creditors are bound to accept the proposal.
The formal alternatives a debtor may enter into under the Bankruptcy Act includes:
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