Struggling with debt can be the worst feeling, and the weight is so heavy it can even leave people feeling lost and depressed. There are so many reasons why someone may be going under with debts, but before you go Bankrupt, or enter into a Debt Agreement, make sure you have exhausted all your options.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.

Last week, a post on credit card debt from Savingsguide.com.au caught my interest. It covered what to do if you are in debt…deep. It explores the option of Debt Agreements.

Debt and its ramifications is a subject close to my heart, as both a former bankrupt, former broker and now credit file repairer.

So how did I end up bankrupt? Essentially I took the wrong advice. I declared bankruptcy when I thought it was the only option. But let me tell you, there are a host of other options out there, all of which may be a better choice long term.

It all started when I had my promotions company. It was doing pretty well. I had some high-end contracts even securing a McDonald’s contract. But finance was not my strong point (well not then anyway!) I needed to get someone in to help me with the accounts. I brought in a mate who I thought could do that side of things for me. But over four months he ended up stealing $135,000 which I had borrowed for the business and left me broke, with no way to make loan repayments.

I sought legal advice straight away, and was told my only option was to declare bankruptcy. This didn’t sit well with me, but up to my eyeballs in debt, I reluctantly proceeded with it.

I was then chatting with another lawyer, who said it didn’t have to be my only option. I rushed to attempt to have the bankruptcy halted or reversed, but it was no use. After to-ing and fro-ing with the authorities, it turned out I was stuck in the bankruptcy until the end of the term (three years).

I couldn’t believe there could be such conflicting advice out there especially at a time of significant financial stress.

So what did I learn about this experience, along with the knowledge gained as a broker and a credit repairer that can help you in a situation of debt?

What It Means To Have a Bankruptcy Notation

Both Bankruptcy and Debt Agreements – Part IX and Part 9 are an act of bankruptcy and fall under the Bankruptcy Act 1966. Because of this, both types of agreements will be noted on your credit file for 7 years which impacts your ability to obtain credit during this period. But what’s more, you will be given a Bankruptcy number, which remains part of your credit history for life.

This Bankruptcy or related notation, will be a permanent record on your NPII (National Personal Insolvency Index).

Having this in your past can also be disadvantageous to you in other situations. You could be asked whether you have ever had a Bankruptcy or Debt Agreement notation on your credit file at job interviews, in business situations, when being party to different organisations, when you apply for credit, even when trying to get a mobile phone on a plan –  and answering incorrectly constitutes fraud.

So what are some solutions for people in deep doo doo other than entering Bankruptcy or Debt Agreements?

Talk to your creditors

I can’t stress how important it is to not bury your head in the sand in these situations. Talk to your Creditor about what they can do to help you.

If Creditors have not commenced legal action yet, you may be entitled to relief under hardship provisions. It is essential to investigate this option.

Most creditors don’t want you to go bankrupt. Most are willing to help you work out some kind of payment plan. If you tell them about your ‘financial hardship’ circumstances, and use those words, asking for a variation in your payments they will often accommodate you.

In fact, with new laws having just been passed in Parliament this week, from March 2013 this process will be much easier and generally it is encouraged as a deterrent to any kind of credit file blemish or prior to someone having a court Judgment or a last resort-Bankruptcy filed against them. See more info on the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 and what the benefits might be for you.

Money Help, a website run by the Victorian State Government offers some help on how to apply for financial hardship variation with creditors in the correct way.

“If you wish to ask for hardship consideration, it is always better to put your request in writing as this means you can keep a copy of the request as a record. It is more difficult to prove the details of a request made by phone. If you entered into your loan agreement after July 1 2010, or if your debt relates to a credit card, then your credit provider must respond to you within 21 days of your application.”

Money Help advises people to work out what they can afford to pay prior to requesting a financial hardship variation. They explain the benefits in applying for hardship can range from more affordable payments, to putting a stop on action towards defaulting your credit file.

My extra tip is for you to make it clear to the creditor what you are requesting. It would be a good idea to specifically request a ‘financial hardship’ variation to your repayments – in writing, so there is no confusion.

If the Creditor refuses to consider your variation request, you may be able to contact the Ombudsman Service for the Creditor’s industry to escalate your request.

What about if the creditor has already issued a default?

If despite sorting out varied terms in your repayments with your creditor (which you are currently making), you find you have a default on your credit file, you may have grounds to request its removal.

Basically, if a default has been issued which you believe is unjust, unfair, in error or shouldn’t be there, you have the right under Australian credit reporting legislation to have the inconsistency rectified.

The problem with seeking redress as an individual is two-fold. Firstly, without extensive knowledge of credit reporting legislation it can be difficult to enforce ruling that creditors are bound with without knowledge of what the rules are.

Secondly, people negotiating on their own behalf can run into problems in many cases. People have often attempted to remove the default themselves, and have been told defaults DONT EVER get removed. The best they can do is mark the listing as paid (if it’s been paid).

Alternatively, a professional credit rating repairer works with creditors to negotiate on your behalf and work for the best outcome based on the creditor’s compliancy with the current legislation. They will also look at any other extenuating circumstances to determine if there is an avenue that can be investigated which results in having the listing removed.

Contact us for more information at www.mycra.com.au or tollfree on 1300 667 218 for consultation with a professional credit rating repairer.

Sacrifice and struggle is better than bankruptcy

Some people prefer to just write off the debt, declare bankruptcy and not go through the struggle of making repayments on the debt, but let me tell you, looking for a reduction in payments or settling the debt at a lower amount is an option preferred by many Creditors, and should be preferred by you.

Firstly, you may be able to avoid a Default or Judgment on your credit file, meaning when you’re back on your feet you might be able to borrow again and secondly, more doors are open for you in terms of job and business opportunitites without having that notation on your NPII.

If legal proceedings have commenced it may not be lost

Even if a Judgment has been filed against you, you still may be able to work something out with the Creditor in terms of repayments. You may be able to file an application for an Instalment Order, which gives you time to repay the debt and or ask for a reduced settlement.

Please Note – This information is provided to help you in your research into debt management and should not constitute legal advice or replace getting professional financial advice from a financial counsellor. The Australian Competition and Consumer Commission Website directs people to where to go if they need help with debt, and we encourage you to seek help from them and do more research before making any financial decisions http://www.accc.gov.au/content/index.phtml/itemId/815382

Image 1: nuttakit/ www.FreeDigitalPhotos.net

Image 2: Grant Cochrane/ www.FreeDigitalPhotos.net