When debt looms over you with the possibility of financial instability, two main choices surface: debt restructuring and bankruptcy. Both will offer you reprieve, but they differ in basic ways and have different impacts on your future financial health.
Understanding the options allows you to make an informed choice that is appropriate in terms of your actual situation and future plans.
Debt Restructuring
Debt restructuring involves negotiating new terms with your creditors to make your debt more manageable. This process typically includes reducing interest rates, extending payment periods, or even negotiating partial debt forgiveness.
The biggest benefit is the retention of control over the financial condition while keeping the credit standing in some way. Most prefer restructuring as less interfering in the daily lives, as they may keep their assets and continue with normal operations.
Debt restructuring requires the collaboration of creditors, but is sometimes unsuccessful. Not all creditors will agree to new terms, and the procedure requires continuous income in order to meet new payments.
The Process of Bankruptcy and the Consequences
Bankruptcy is a legal way of getting out of or reducing debt dramatically through the courts. Personal bankruptcy in Australia lasts three years and one day, during which time the financial affairs are looked after by your trustee.
This choice offers immediate protection against the actions of creditors and will wipe out most unsecured debt in full. For debtors who have overwhelming debt burdens, bankruptcy may bring the new beginning that restructuring will be unable to offer.
Some of the drawbacks include significant restrictions on travel, business, and credit. Your name is registered permanently in the National Personal Insolvency Index, and certain employment may be affected. Moreover, you may end up losing assets that are non-essential in the bargain.
Important Factors in Making Your Choice
Your current income also dictates the way that is best. Debt restructuring requires steady income in order to be able to meet new payment schedules, but bankruptcy would be more suited if your ability to earn an income has suffered badly.
Asset protection is another important issue. If you have desirable property or assets you don’t want to lose, restructuring may save such assets. Bankruptcy, on the other hand, may involve the loss of non-exempt assets in paying the creditors.
Debt quantity and debt type also come into play in your resolution. Secured debt such as mortgages typically survives bankruptcy, while unsecured debt such as credit cards and personal loans can be entirely discharged. Consulting with an insolvency lawyer can clarify how debt type affects both options.
Selecting the Appropriate Solution from Your Case
Your selection should be based upon both immediate requirements and long-term objectives. If you have fixed income and creditors that are willing to renegotiate, debt restructuring holds more control and better protects your credit report.
Bankruptcy is the more favourable course when debt levels are greater than your ability to pay, even with restructured payments. The most inclusive debt discharge is this path, but at the cost of assuming notable short-term limitations.
You may also want to get professional advice before making any decision. Financial counsellors and lawyers can evaluate your unique case and direct you towards the best solution based on your circumstances.
Leave a comment