Case Study – Birth of a Baby
Carmine and Michelle have been together for a few years.
They bought a house together and have taken out some loans and credit cards to purchase new furniture and pay for landscaping for their new home. As they are both working they are able to manage all credit commitments.
A little while later Carmine and Michelle fell pregnant—whilst welcome, it was unplanned addition to their family. Due to complications in the pregnancy, Michelle has been forced to go on maternity leave earlier than expected. They are now relying on Carmine’s income and the temporary Paid Parental Leave Michelle receives from Centrelink. They have fallen behind with repayments and are receiving collections calls and emails.
As they bought the property so recently, there is no equity to allow for a refinance and/or consolidation. Michelle contacted all creditors to discuss her circumstances and immediately applied for Hardship Relief. On this occasion hardship was not granted, as the lenders assessed that Carmine still had an income and therefore did not meet their hardship criteria in this case. They were expected to recommence repayments as well as make a catch-up arrangement for the payments missed.
Unfortunately they were unable to maintain all of the accounts have been notified that defaults had been listed on each credit file. Creditors are applying more pressure, demanding unrealistic repayments and threatening legal action. Neither of them want to consider Bankruptcy, however, are unable to make the payments the creditors are demanding.
They are unsure what they can do and what options are available.
$2,600 per month
$445 per month
$249 per month
$384 per month
$80 per month
$96 per month
$200 per month
UNSECURED DEBT TOTAL
$1,454 per month
An overview of Carmine and Michelle’s Debts
Life After Debt ® advised that a Part IX Debt Agreement would likely be the best option.
Michelle and Carmine were made aware by Life After Debt ® that;
- A Debt Agreement is a compromise on unmanageable unsecured debts which enables the individual to avoid Bankruptcy. All unsecured debts must be included and they would need to be assessed against the eligibility criteria.
- If the offer is accepted, they would each have one manageable repayment based upon what they can afford, rather than what each Creditor is demanding.
- They would have protection from any further collections harassment, legal or recovery action.
- Furthermore, the interest on the debts is frozen.
- Not all Creditors have to agree to the offer for it to be accepted. The outcome is decided by the majority of creditors in dollar value.
- A listing would be placed on each credit file which would remain there for 5 years and her details would be recorded on a Government database called the NPII.
- As the Administrator, Life After Debt would receive an administration fee which would be deducted from the contributions to Creditors.
- As the Debt Agreement is processed by a Government department called AFSA, they would receive a realisations charge which would be deducted from the contributions to Creditors.
- Joint debts. NB: A Debt Agreement is an arrangement per individual so each of them would need to lodge an offer to Creditors and the joint personal loan would be listed in both Debt Agreements.
- The mortgage is a secured debt so must be maintained separately.
Summary Result (Once Accepted)
Michelle and Carmine are delighted to have a solution that allows them to maintain their mortgage and makes the unsecured debt affordable. All the collection calls have stopped and they can concentrate on their new baby.