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Alternatives to Bankruptcy

Bankruptcy is a drastic option to take. Exploring all your options before going to the last resort of bankruptcy is the prudent course of action. In fact, as bankruptcy is not an instant remedy for the recovery of debts, it is recommended that creditors should not rush to commence bankruptcy proceedings. Therefore, what are some alternatives to Bankruptcy?

Available Options

The following are alternatives you may consider:

  • Private arrangements;
  • Voluntary Arrangement (VA);
  • Debt Repayment Scheme (DRS).

Private Arrangements

You may enter into private arrangements with your creditors. This is, in effect, a binding contract and/or a settlement agreement between parties. However, you should be aware that should you not comply with the private arrangement, this will also be grounds for creditors to commence bankruptcy proceedings against you. The creditor may be also able to claim more than previously if it is able to prove that the amount owed by you has increased due to the breach of the private arrangement.

However, the advantage of private arrangements is that the parties remain fully in control of the repayment process. The terms and conditions of the repayment are a matter of negotiation between parties. Therefore, you can enter into a private arrangement with creditors to pay debts by instalments, at an agreed upon amount and time. Further, it is also possible to reschedule payments or being granted an extension of time to liquidate assets or seek other financial sources to repay debts.

It is recommended that you be truthful and honest with your creditors on your financial position at this stage. This prevents creditors from issuing statutory demands due to a lack of clarity on when they may expect repayment, which will force you to respond as ignoring or non-payment of the statutory demand constitutes grounds for the creditors to make a bankruptcy application against you.

Voluntary Arrangement

You may also apply to court for an interim order for a VA under Part V of the Bankruptcy Act (“BA“). Essentially, a VA is a formal arrangement between you and your creditors to repay the debt. However, you must be supervised by a nominee. The nominee specified must be a:

  • Registered public account; or
  • A lawyer; or
  • A person gazetted by the Minister.

A VA comes with significant advantages as opposed to bankruptcy. Firstly, if you can show that you intend to make a proposal for a VA, you will be able to apply for an interim order. The function of the interim order is to suspend any action or legal proceeding already pending against you, and prevent any action or legal proceeding from being initiated against you. Secondly, the VA does not impose restrictions on you that a bankruptcy order would.

However, after the interim order is granted by the court, you must work with your nominee and disclose all assets and liabilities and make a proposal on how you intend to repay your debts to your creditors. Otherwise, the interim order may be discharged.

After your proposal is made, your nominee will prepare his report and summon a creditors’ meeting for the purpose of approving the proposal. If the VA is accepted by the creditors during the creditors’ meeting, the VA will be successfully implemented and you and all creditors who were entitled to vote at the meeting will be bound by the terms of the VA.

However, please be aware that if you do not comply with the terms of the VA, any creditor bound by the VA may make a bankruptcy application against you.

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Debt Repayment Scheme (“DRS“)

The DRS is a scheme that the court may refer you. The DRS is a pre-bankruptcy alternative that allows you to avoid declaring bankrupt. However, you must first file a Debtor’s Bankruptcy Application. If you meet the eligibility criteria of the DRS, the court will then refer you to the DRS upon the bankruptcy application. In brief, to qualify for the DRS:

  • your total debts must not exceed $100,000;
  • you must not have been a bankrupt or been on the DRS in the last 5 years;
  • you must not currently be under a VA or been under a VA in the last 5 years;
  • you must not be a sole proprietor or a partner in a partnership.

If you meet the eligibility criteria, and you are found suitable for the DRS, the Official Assignee (“OA“) who is in charge of administering the DRS will approve your DRS, and you will begin making repayments to the OA. 

How We Can Help

It is highly recommended to do everything you can before initiating bankruptcy proceedings, regardless if you are the debtor or creditor. If you are considering how to stave off bankruptcy and find alternative means of payment to ease the pressure on you, please contact us and we will have a fruitful consultation with you on your available options.

Speak to a lawyer now

CONTACT US TODAY

Our specialised lawyers and their team are standing by to assist you. Our first consultation is free.

The information contained within this website contains general information about our lawyers, Law Firm and procedures and is not intended to constitute legal advice.
Any person viewing or receiving information from this Website should not act or refrain from acting, on the basis of any such information without first seeking appropriate legal advice.
Please consult a lawyer for specific review of your case and advise. 

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