THE economic hard times are beginning to bite, with thousands of people unable to pay their bills now desperate to cut a deal.
Debt agencies report they are working seven days a week as people, even those earning more than $100,000 a year, flood the phone lines asking for help in tackling credit card debt and personal loans they are no longer able to repay.
“Six months ago we were getting around 500 calls a month. Now, it’s 800 calls,” said Anthony Warner, chief executive of Get Debt Free.
Most of the people who contacted him felt they were “getting nowhere”, Mr Warner said, as they struggled to pay off their debts in increasingly tough economic times.
“It is all to do with credit card and personal loans that people have taken out that they cannot afford,” he said.
“It is not atypical for a person to have five or six credit cards.”
Figures compiled by Insolvency and Trustee Service Australia – which held its “bankruptcy congress” on Friday – show that from July to September, 2202 people entered into debt agreements, a 35.59 per cent increase compared with the same period last year. Personal insolvency agreements rose to 112 for the quarter, up from 47 in the correspondong period last year.
A debt agreement is entered into by a person who has less than $82,501 in unsecured debts – such as credit card debt – or earns less than $85,000.
If the debt or income is higher, a personal insolvency agreement can be negotiated.
Under both agreements, a deal is negotiated with a person’s creditors and any interest is frozen.
“The really sweet spot is that creditors will readily entertain proposals from 60c in the dollar and above, and in some circumstances consider less,” Mr Warner said.
“We work out a budget, how much they can afford to repay in a month, and we take that available income and apply that over three, four, up to five years to see what kind of dividend can be achieved for creditors.”
But there are downsides. A person’s credit rating is affected for seven years and AFSA keeps a national register of the agreements. The agreements involve fees, which can range considerably in the market. The AFSA conference on Friday reported that set-up fees alone could range from nothing to $1800. An administration charge was also payable and could range from 15 to 27 per cent of the repayments.
Mr Warner said his company offered free phone consultations, and Debt Fix administrator Nicholas Bregozzo said he did not charge if he could not help aclient.
Mr Bregozzo said he was working seven days a week to keep up with a “flood of inquiries”, but it was not just people on low incomes seeking help.
“We have seen a lot of people who wouldn’t normally come through – double-income households on fairly decent incomes up to $150,000,” he said.
“Credit in the past has been easy to get.”
But for creditors who voted against an agreement, Mr Bregozzo said they might end up finding themselves worse off when the customer was forced into bankruptcy and unable to pay much, if any, of their debt.
“Some creditors are very good and others need to realise that a ‘no’ vote for a debt agreement isa ‘yes’ vote for a bankruptcy,” he said.
Written by Susannah Moran, The Australian on 3/11/2008
Tagged → Debt Free interview