Bankruptcy – Pros, Cons & Alternatives – Part 2
Last month I discussed bankruptcy generally and noted that rather than being the easy way out it does have many disadvantages that could possibly be avoided by considering alternatives. The first alternative I discussed was a cooling-of period or moratorium where the person contemplating bankruptcy is given seven days to consider his or her options whilst creditors are prevented from taking action to recover their debts.
The following are further options that can be considered:
•Informal Agreement
Sometimes creditors are able to agree to the debtor paying off the debt over time on certain conditions. It is important to note that informal arrangements will only be binding on those creditors who agree with them. For informal arrangements to be effective it is also essential that the agreement be entered into as a written deed between all the parties.
• Part IX (9) Agreement
This is a formal agreement between the creditors and the debtor whereby the debtor pays off the debt or even only part of the debt in a certain manner. The effect of such an arrangement is that the debtor is released from their debts once they complete the agreement as if they had been discharged from bankruptcy. This agreement is publicly recorded. However this type of agreement is only available for unsecured debts under around $77,000.00 and where the assets of the bankrupt are valued at less than $77,000.00.
• Part X (10) Agreement
This is similar to the Part IX Agreement except that this type of agreement has no monetary upper limit. 75% of creditors (based on the value of the debt) must agree to the agreement. The main reason why creditors chose Part X Agreements is that it will probably cost them less than if the debtor was forced into bankruptcy.
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