Australians being hammered with severe debt problems are increasingly turning to debt agreements over bankruptcy, according to new figures.
Insolvency and Trustee Service Australia (ITSA) data shows a 68% increase in debt agreements since January 2007, with bankruptcies declining 20% over the same period.
This follows 2007 reforms to the Bankruptcy Act, aimed to improve debt agreement regimes.
Attorney-General Nicola Roxon said debt agreements provide better outcomes for people’s financial circumstances, allowing those in debt the chance to save their home.
“Debt agreements in many cases can be the smarter way forward, especially as bankruptcy can leave a financial legacy that can affect people for years,” she said.
MyCRA Credit Rating Repair CEO Graham Doessel remained doubtful. He warned consumers to keep in mind that both options record a bankruptcy notation on a consumer’s credit file.
“A formal debt agreement may be a nice form of bankruptcy, but make no mistake – it is still part of the Bankruptcy Act 1966. Both options will impact a consumer’s credit file and ability to obtain credit for seven years. What’s more, the debtor will be allocated a bankruptcy number, which remains part of their credit history for life,” he said.
Doessel added that the debtor’s name and other details appear on the National Personal Insolvency Index (NPII), a public record, for any debt agreement.
“You can’t get away from this notation, and answering the question ‘Have you ever been bankrupt or entered into a debt agreement?’ incorrectly constitutes fraud.”
From March, 2013, the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 will take effect, making it easier to make a request for financial hardship variation.
As the amendment takes effect, Doessel said that it is important for people to address financial difficulty early.
“By catching it early and avoiding a default, writ, judgment or bankruptcy on your credit file, when you’re back on your feet you could have the option to borrow again.”