radford tax logo
07 5495 4100 ◆

Options to consider before declaring bankruptcy

Posted on June 10, 2020 by admin

Businesses struggling with debt may feel like declaring bankruptcy is their only option. Premature bankruptcy is an unfortunately common scenario but there are ways businesses can deal with unmanageable debt before declaring bankruptcy.

Temporary Debt Protection (TDP)

Businesses with debt they can’t pay or are being taken action against by unsecured creditors can apply for TDP. TDP provides a six-month protection period where unsecured creditors can’t take enforcement action to recover the money businesses owe them. Businesses are encouraged to use this time to seek advice from the Government’s free financial counsellors, negotiate payment plans with creditors and consider other formal insolvency options which may work better for them.

Declaration of intention (DOI)

A DOI is a short-term option similar to TDP and protects businesses for 21 days from unsecured creditors. During this time, creditors can’t take further action to recover their debts.

Debt agreement

A debt agreement details how businesses will settle their debt and is a flexible way to help businesses come into an arrangement without becoming bankrupt. A debt agreement means either paying a lump sum that may be less than the original amount owed, or repaying debt in instalments. Businesses can apply for a debt agreement if they:

Debt agreements can go for up to three years.

Personal insolvency agreement (PIA)

A PIA lets businesses pay off their debt in a way that suits their financial situation. It is similar to a debt agreement but a business’ debt, income and assets do not have to be under a certain limit.

Keep in mind that while these methods are effective in helping businesses avoid bankruptcy, there are still consequences. While usually producing positive results, be sure to weigh up these options and consider whether the long-term effects of implementing them are worth avoiding bankruptcy.

maximise your business's value

latest news

Avoiding mortgage default

Posted on August 26, 2020 by admin

As individuals struggle with cash flow through the coronavirus, the Australian Bankers Association records that repayments on almost 500,000 mortgages have been deferred for six months. While repayments can be delayed, they cannot be avoided altogether.

Lenders can send you a default notice the day your repayment is overdue. However, they could also wait until your repayment is overdue by 90 or more days. When you receive a default notice, you are given 30 days to repay the amounts you have missed in addition to the regular repayment on your loan. Individuals who are struggling with their home loan repayments can avoid mortgage default by considering the following.

Contact your lender
Lenders are generally willing to work with you through financial hardship. Don’t be afraid to contact your lender to discuss your situation and find out what options are available for you. Lenders are often willing to negotiate short-term variations to repayment schedules that both parties can agree to. However, make sure that you do not agree to unrealistic repayment conditions that cannot be met.

Many Australian banks are offering a six-month deferral on mortgage repayments (including interest) for customers who are experiencing financial hardship as a result of COVID-19. If this is you, contact your bank to see if this is an option.

Apply for a hardship variation
Mortgage holders may be able to change the terms of their loan or temporarily pause or reduce their repayments under a hardship variation. A hardship variation can still be requested after you receive a mortgage default. To apply for one, contact your lender’s “hardship officer” and tell them that you wish to change your loan repayments due to financial hardship. This will usually require you to explain why you are struggling to make payments and to estimate how long your financial problems will continue to determine how much you can afford to repay.

After submitting a hardship variation request, your lender must contact you within 21 days with the outcome of your request. They may ask you for more details regarding your request; in this case, they must contact you again within 21 days from when you provide the additional information.

Consider selling your home
Selling your home is a tough decision, but in some cases this may be the better option if your circumstances are unlikely to improve. If you get to the point where your lender takes possession of your home and sells it, it’s likely that you won’t make as much as if you sold it yourself. When you sell your house on your own terms, chances are you will get a better price and avoid having to pay the legal fees passed on by your lender. Inform your lender if you decide to sell your home; they may ask for proof, such as a copy of the contract with your real estate agent or property advertisements.

Renting out your home until you can afford to make repayments again may also be an option if you are able to live somewhere else during this period.

radford tax associationsradford tax associationsradford tax associations