Debt agreement rip off
November 4th 2009 02:10
The number of people taking out debt agreements surged twenty nine per cent last financial year, while total bankruptcy activity as reported by the government’s insolvency trustee was up eleven per cent.
Even after the Rudd government’s generous economic stimulus payments to families were delivered earlier this year, the number of new debt agreements continued to grow by thirteen per cent.
Under a debt agreement, an indebted consumer typically repays about 76 cents in every dollar they owe, plus they have to pay thousands of dollars to a ‘debt agreement administrator’ who collects their repayments and distributes them to creditors.
Often a debt administrator’s fees can take about forty per cent of an insolvent consumer’s repayments.
Many people are sold debt agreements when they should really be declaring themselves bankrupt says Richard Foster, executive director of the Financial and Consumer Rights Council.
“Financial counselors see a lot of people who have entered into debt agreements on illogical and unviable terms to begin with,” says Foster “The repayments are set too high and are often unrealistic.”
“There are a lot of debt agreements that fail and the debtor ends up as bankrupt anyway.”
Now new laws proposed by the federal attorney general Robert McClelland seeks to encourage debt agreements over bankruptcy.
“Debtor agreements recover about 76 cents in the dollar whereas bankruptcy only recovers about 1.6 cents in the dollar,” said McClelland last week “So it can be a better outcome all round.”
Debt agreements are certainly a better outcome for creditors and for the companies that administer them like Fox Symes, the dominant player in the debt industry, with 54 per cent of the market.
Fox Symes profit jumped up 229 per cent in the year to June 09 on revenue growth of forty per cent.
The Victorian Consumer Action Law Centre has real concerns about Robert McClelland’s reforms.
“We don’t think they should be expanding access or funneling more people into debt agreements,” says Nicole Rich a solicitor at the consumer centre.
“We have a lot of concerns about this industry, including the fact that the single largest amount of money paid by a person on a debt agreement goes to the administrator.
“They are often marketed or sold to the debtor as a way to avoid the stigma of bankruptcy.
“But they are still an act of bankruptcy that stays on your credit file for seven years,” says Rich.
“At least with a bankruptcy you clean the slate and can start again.”
Richard Foster also expresses some doubt that debt agreements can be classified as good for everyone.
“I wonder how many people who entered into debt agreements profited by it as much as Fox Symes did?”
Even after the Rudd government’s generous economic stimulus payments to families were delivered earlier this year, the number of new debt agreements continued to grow by thirteen per cent.
Under a debt agreement, an indebted consumer typically repays about 76 cents in every dollar they owe, plus they have to pay thousands of dollars to a ‘debt agreement administrator’ who collects their repayments and distributes them to creditors.
Many people are sold debt agreements when they should really be declaring themselves bankrupt says Richard Foster, executive director of the Financial and Consumer Rights Council.
“Financial counselors see a lot of people who have entered into debt agreements on illogical and unviable terms to begin with,” says Foster “The repayments are set too high and are often unrealistic.”
“There are a lot of debt agreements that fail and the debtor ends up as bankrupt anyway.”
Now new laws proposed by the federal attorney general Robert McClelland seeks to encourage debt agreements over bankruptcy.
“Debtor agreements recover about 76 cents in the dollar whereas bankruptcy only recovers about 1.6 cents in the dollar,” said McClelland last week “So it can be a better outcome all round.”
Debt agreements are certainly a better outcome for creditors and for the companies that administer them like Fox Symes, the dominant player in the debt industry, with 54 per cent of the market.
Fox Symes profit jumped up 229 per cent in the year to June 09 on revenue growth of forty per cent.
“We don’t think they should be expanding access or funneling more people into debt agreements,” says Nicole Rich a solicitor at the consumer centre.
“We have a lot of concerns about this industry, including the fact that the single largest amount of money paid by a person on a debt agreement goes to the administrator.
“They are often marketed or sold to the debtor as a way to avoid the stigma of bankruptcy.
“But they are still an act of bankruptcy that stays on your credit file for seven years,” says Rich.
“At least with a bankruptcy you clean the slate and can start again.”
Richard Foster also expresses some doubt that debt agreements can be classified as good for everyone.
“I wonder how many people who entered into debt agreements profited by it as much as Fox Symes did?”
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