In our last newsletter, we covered the options available to a Company (and its Directors and Shareholders) when a Company has difficulty paying its debts.
In this edition, we discuss the options available for individuals faced with debt difficulties.
The options are similar to that for a Company, other than some of the options are governed by different legislation.
The options available to an individual when faced with debt are:
1. Pay all of the debts owed in full
This could be facilitated by:
- A lump sum payment (borrow money, from assets, sale of a business, etc)
- Payments over time
2. Compromise / settle the debts with Creditors
- A private settlement negotiated with Creditors directly
- A formal arrangement pursuant to the Bankruptcy Act. This can be achieved via a:
- Part IX Debt Agreement (this option has certain restrictions)
- Part X Personal Insolvency Agreement
3.Do nothing or don’t resolve the debts owed
If the debts are not settled or paid, this may lead to:
- Creditors taking action to garnishee income or sell assets, including the ATO retaining taxation refunds
- Secured creditors taking steps to recover and sell secured assets (e.g. banks, private secured lenders, motor vehicle financiers, debt financiers, trade creditors)
- Suppliers recovering goods (retention of title / security claims) – for business related debts
- Landlords evicting tenants
- A creditor bankrupting the individual through the Courts
4.Voluntarily file for Bankruptcy
This can be done by individuals if they are unable to repay their debts owed.
Bankruptcy involves an independent party (a Trustee – such as members of SV Partners) being appointed to investigate a Bankrupt’s affairs and attempt to recover assets and money to repay debts owed.
Bankruptcy provides individuals with relief from debts owed, including credit card debts, personal loans, debts guaranteed, ATO debts, utility accounts, professional costs, supplier accounts, medical costs, etc. Some debts are not cleared by a bankruptcy, such as penalties and fines, child support and maintenance, Government student loans, debts incurred after bankruptcy, unliquidated debts and certain secured or financed debts (if you want to retain assets subject to security or finance, subject to the Bankruptcy Trustee’s rights and interest).
With higher interest rates forecast, costs of living increasing, the ATO actively chasing debt and issuing Director Penalty Notices (DPNs) and the number of small business insolvencies on the rise, we expect to see more individuals feeling the pinch.
If you know someone facing personal debt difficulties, please contact your local SV Partners’ expert for assistance.
Call us today on 1800 246 801 or submit an enquiry to [email protected].
Article written by Jason Cronan (Director) – Sunshine Coast