Debt Solutions Archives - Armada Advisory

End of Temp Debt Relief – Act now

Written by Carlo Napolitano on 22/12/2020. Posted in Bankruptcy, COVID19, Debt Solutions. Leave a Comment

If you are like the many who have been struggling with debts and were thankful for the relief given by the government. This news is not good (make sure you are sitting down).

All government relief will end on the 1st January 2021. This will mean that debt collectors will begin knocking on the door and chasing you for outstanding debts.

Act now to speak with a Debt Solutions expert to find out what your options are. Doing nothing will not change the situation and you will feel like running a marathon without a finishing line.

It’s time to act and get rid of the stress that debt brings. Armada provide a FREE ASSESSMENT for all people who reach out to Armada. This is for both personal and corporate debts.

Below is the official statement from the Australian Financial Security Authority (AFSA).

Temporary debt relief measures will be wound back on 1 January 2021

In March 2020, the Australian Government announced a series of changes to bankruptcy law, as part of the wider economic response to the COVID-19 pandemic.

The temporary changes included:

an increase in the debt threshold, which enables creditors to apply for a bankruptcy notice
an increase to the timeframe for a debtor to respond to a bankruptcy notice
an increase to the temporary debt protection period available to debtors.

As of 1 January 2021, those temporary changes will cease. An amendment has also been made to adjust the bankruptcy threshold. This means:

the minimum amount of debt that can trigger bankruptcy is $10,000, down from $20,000
the amount of time an individual has to respond to a bankruptcy notice is 21 days, reduced from six months
temporary debt protection allows for 21 days relief from creditors, instead of six months.

Before the temporary changes were implemented in response to the COVID-19 pandemic, the minimum amount of debt that could trigger a bankruptcy was $5,000.

The government has amended the bankruptcy regulations to adjust the threshold for petitioning bankruptcy to $10,000 or more.

– Ends –

What to do? – If this sounds like you or someone you know, speak with a debt solutions expert as soon as you think you may need to get a payday loan. There are many formal and informal debt solutions available to everyone, especially if you are struggling and are feeling that your head is just above water.

THE FINAL WORD – At Armada we are proud of what we do. We are a family business and built on family values. We will give you the honest solution, even if it isn’t what you want to hear. We do that because we know what you are going through and we know how good your life will be after the debt solution is in place.

Armada offer a FREE ASSESSMENT to every client. This is done with NO OBLIGATION. If you want to get a FREE assessment click here and one of team will be in touch for a chat. It’s that simple.

Payday Lenders Debts – what can I do?

Written by Carlo Napolitano on 01/11/2020. Posted in Bankruptcy, Debt Solutions, Unemployment. Leave a Comment

In the office we have recently spoken to many potential clients who are reluctant to go into a debt solutions as they feel a duty to ‘do the right thing’ by their creditors (people they owe money to).

The Armada team spend a lot of time trying to make our clients understand that the most important person in debt issues is you and your family, not the creditor. We know that if you could afford to pay the debt off, you would. However now more than ever, situations have changed. Jobs have been lost, we have gone into recession and Australia has changed. This is not your fault.

The point I want to make is that Payday lenders are big business, no matter how caring they seem. I would like to direct you to the following information that was brought to our attention by Channel 9.

“A pay day lender is in hot water with the corporate regulator after allegedly raking in $78 million in fees from customers.

Cigno Loans allows customers to borrow up to $1000 with most signing up online and being approved within minutes.

But the fees charged are allegedly huge, with some customers claiming they have paid back nearly 1000 per cent on their loans.

Tikyah Amber Boyce borrowed $175. She claims she was told she’d end up paying back around $300. Now she owes more than $1000.

Ms Boyce told A Current Affair she set up automatic payments of $94 a week; but on the fourth transaction they took double.

“I noticed they took $188, which was definitely not the $94 they said they’d be taking out,” she said.

Ms Boyce thought she’d paid back the loan and stopped hearing from the company, until debt collectors started calling three months later saying she now owed $1135.

The huge amount was made up of weekly account keeping fees of $5.95 and $79 default fees.

“I was a bit shocked. Unemployed, living with my family it didn’t cross my mind how I was going to get the money to pay it back,” she said.

Alisha Hayden also used Cigno Loans when her dog was rushed to the vet and she needed cash fast.

She secured a $500 loan thinking she would pay back around $850. She too realised Cigno had taken extra payments.

“I said ‘can someone explain to me what’s going on, I’ve paid back $1200 so far and you’re still taking payments out’,” Ms Hayden said.

She claims the company then told her she owed a further $500 in default and account keeping fees.

When she told the company she wouldn’t be paying it, she claims they made an offer for her to pay just over $200 for the matter to be finalised.

All up she paid more than $1400 on a $500 loan.

Cigno Loans is no stranger to controversy.

Last year ASIC went after the company, lodging a product intervention order.”

Many people think that these type of loans will be used to pay back debts by consolidating their debts into one affordable payment. The problem is that it turns into not being AFFORDABLE very quickly, which is where the problems starts. Another thing, which all debt solutions experts know, is that if you have a payday lender (Short term / High interest) loan, most big bank lenders will not offer you finance.

Small Business Restructuring – In a nutshell

Written by Carlo Napolitano on 01/10/2020. Posted in COVID19, Debt Solutions. Leave a Comment

The Morrison Government will undertake the most significant reforms to Australia’s insolvency framework in 30 years as part of our economic recovery plan to keep businesses in business and Australians in jobs.

The reforms, which draw on key features from Chapter 11 of the Bankruptcy Code in the United States, will help more small businesses restructure and survive the economic impact of COVID-19. As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner.

Key elements of the reforms include:

The introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on some key features of the Chapter 11 bankruptcy model in the United States.

This means: If you have debts less than $1million you are eligible to enter into this new insolvency structure.

Moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model which will allow eligible small businesses to restructure their existing debts while remaining in control of their business.

This means: As a business owner you will still remain in possession or control of your business while you work with the practitioner to assess and design a possible solution. You can continue to trade, keep the doors open and employee staff.

A rapid twenty business day period for the development of a restructuring plan by a small business restructuring practitioner (SBRP), followed by fifteen business days for creditors to vote on the plan.

This means: You will have 20 days from appointing a practitioner to work together on a suitable plan to present back to the people you owe money to (creditors).

A new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.

Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to meet the needs of small business.

The reforms will cover around 76 % of businesses subject to insolvencies today, 98 % of whom who have less than 20 employees.

Together, these measures will reposition our insolvency system to reduce costs for small businesses, reduce the time they spend during the insolvency process, ensure greater economic dynamism, and ultimately help more small businesses get to the other side of the crisis.

On 22 March 2020, the Government announced temporary regulatory measures to help financially distressed businesses get to the other side of COVID-19. On 7 September 2020 the Government announced a further extension of this relief to 31 December 2020. The new processes will be available for small businesses from 1 January 2021.

Info used provided by the Australian Government.

Final Thought

This reform is brand new and the government are writing the legal framework as we speak. You still need to be confident in making profit over a period of time in order to satisfy your creditors. Armada and their trusted partners can point you in the right direction.

Lots of businesses are struggling because of COVID. You’re not on your own. We’re all not sure what the future holds but this is a positive direction by the government as they try to assist businesses who have stopped or reduced trade because of COVID.

This not a “one size fits all’ solution. You need to be up to date with ATO and employee entitlements to access this specific solution.

This is why you must go to an expert who can assist you in getting everything in place to get the best outcome for you and your business. Armada offer a FREE ASSESSMENT for all enquiries. This way you have nothing lose and everything to gain. Doing nothing in not an option and having an exit strategy and a direction can be the end to the months of worry and sleepless nights.

Armada are here and available to talk. Armada can walk you through a FREE ASSESSMENT to see what is best for you. Just click here to learn more and have an Armada team member contact you for a quick chat.

Retaining The Family Home In Bankruptcy

Written by Carlo Napolitano on 23/09/2020. Posted in Bankruptcy, Debt Solutions. Leave a Comment

There are many statements about the family home, such as ‘home is where the heart is’, ‘home sweet home’ and ‘there is no place like home’. This is because the family home is where cherished lifetime memories are made.

The family home is also often the single biggest asset available to a trustee in many bankrupt estates. Understandably, the biggest fear of any individual who is struggling to pay their debts is losing their family home. It can represent the worst consequence of financial failure bringing distress and displacement to not only the insolvent debtor, but also the family who is affected by the financial failure.

To the ordinary person who has little or no knowledge of bankruptcy laws, the natural reaction to financial distress is panic and fear and this is why the first question someone considering bankruptcy may have is, “what will happen to my home?”.

On the other hand, creditors seeking to recover their debts are faced with the predicament of initiating bankruptcy proceedings against a debtor which could be costly and ultimately, not commercially favourable. An unfavourable outcome might arise where there is minimal equity in the debtor’s family home or there is likely to be difficulties in a trustee entering into possession of the property. An example may be resistance from a non-bankrupt spouse of the prospect in a family law proceeding.

Are there different options available to a trustee?

Fortunately, the sale of the family home is not the only option available to a trustee in recovering their interest. There are different methods the trustee can take to realise the bankrupt’s beneficial interest in the property thanks to the flexibility and commerciality the Bankruptcy Act affords to a trustee.

A trustee is able to conduct the administration in a way which not only achieves the best result for creditors, but also minimises the harm to the bankrupt and their non-bankrupt partners/relatives. A trustee has at their disposal a range of options in dealing with estate property that maximises the outcome for the mutual benefit of creditors and debtors.

In other words, it is often the case that the best outcome is to reach a commercial settlement that results in the bankrupt retaining the family home and, at the same time, provide for a maximum dividend rate to creditors. In effect, a win-win scenario plays out which is entirely equitable and in accord with the relevant bankruptcy laws and applicable code of ethics.

Discretionary powers of trustee

Under sections 116(1) and 58(1) of the Bankruptcy Act, the bankrupt’s divisible property, including the beneficial interest in their family home, become assets in their bankrupt estate. The trustee is then required to realise the assets for the best possible value to obtain funds to distribute to their creditors.

However, Section 134(1) of the Bankruptcy Act, allows a trustee to exercise the following discretionary powers:

Sell all or any part of the property of the bankrupt;
Accept, a sum of money payable at a future time as the consideration or part of the consideration for the sale of any property of the bankrupt;
Make a compromise in respect of any claim;
Make such allowance out of the estate as they think is just to the bankrupt, the spouse or de-facto partner of the bankrupt or the family of the bankrupt; and
Administer the property of the bankrupt in any other way.

Maximising outcomes for debtors and creditors

The classic scenario for optimising the outcome for both the debtor and the creditor is where there is marginal equity in the property, and a forced sale of the property by the trustee would result in all proceeds being diminished by the costs of recovery.

Costs of recovery can include court costs to enter into possession, Family Court intervention, adverse family reaction and the usual array of conveyancing and selling costs. The trustee’s costs are also likely to increase during a difficult court-ordered possession.

The alternative solution would be for the trustee and the non-bankrupt spouse to negotiate a settlement of the trustee’s interest in the property whereby the trustee releases the bankrupt from a sale of the property for an agreed upon price paid either as a lump sum or instalments or as a hybrid lump sum/instalment arrangement. The trustee’s interest would ordinarily be sold to a third party, usually the spouse of the bankrupt.

A settlement on the property is a cost-effective means of realising the trustee’s interest in the property, which could maximise the dividend to creditors whilst allowing the bankrupt and their family to retain the family home.

Settlements may also be possible in scenarios where the equity level is much higher. At first instance, it may appear that with a high level of equity a settlement, would not be possible given the size of the trustee’s interest. However, there are many factors which could affect a trustee’s claim which are discussed below.

Factors affecting trustee’s claim

The value of the bankrupt’s realisable beneficial interest in a property is calculated by deducting from the current market value of the property, the amounts owed to the mortgagee(s) and other security holders, council and water rates and selling expenses. If the property is owned jointly with a non-bankrupt person, the value of their net interest is, likewise, deducted in arriving at the value of the bankrupt’s interest in the property.

However, various areas of law including common law, equity law and in particular, family law may alter the extent of the trustee’s claim to the bankrupt’s beneficial interest in the property.

The variables which will affect a trustee’s interest in the property can include:

The registration of the bankrupt on the title of the property ie. Sole proprietor, joint tenant with another person (eg. spouse), tenant in common with another person(s);
The intention of the owners at the date of purchase if the property is owned by a number of persons as tenants in common in unequal proportions.
The borrowers in the loan agreement which is secured by the mortgage on the title.
The amount of any claim for exoneration by the non-bankrupt owner.
The financial contributions towards the acquisition of the property and subsequent improvements to the property;
Judgements under the Family Law Act concerning the property or proceedings on foot;
Claims by persons/parties that they have either an equitable interest in the property or a secured interest, that has not been registered on the title of the property.

Each of the above factors will influence the size of the trustee’s claim to an interest in the property. Below are examples of common situations when dealing with proportions of home ownership and going through bankruptcy.

Example 1 – Joint ownership – repayment plan for 50%

A typical example is where the bankrupt and their non-bankrupt spouse own a property as joint tenants, are both parties to the home loan secured by a mortgage and earn a similar level of income.

If the gross net equity in the property is $200,000, the trustee will have a claim for $100,000. Where it is appropriate to do so, the trustee may be able to allow the settlement amount to be paid over a period of time in regular instalments.

Given the appropriate circumstances, this may be the best outcome for all concerned including creditors, particularly if any attempt by the trustee to recover the property by force through a court of law could be met with resistance by the non-bankrupt spouse. Escalating costs of a dispute could erode the funds available for a dividend to creditors.

Example 2 – unequal proportions – intention of the parties

A more complex example may involve a property held in unequal proportions as tenants in common between bankrupt and non-bankrupt spouse.

The intention of the non-bankrupt was to purchase the property for their own benefit, but they needed to purchase the property in joint names to meet the lender’s eligibility criteria for the home loan on the house.

Therefore, the intention of the parties at the time of the purchase in regarding the beneficial ownership of the property, will reduce the size of claim by a trustee. The intention of the parties has been well established in case law: Weston v McAuley [2017] FCCA 1.

Conversely, insolvent debtors and their advisors ought to carefully consider the trustee’s potential claim in scenarios where the insolvent debtor has a smaller proportion of ownership or is not registered on title of a matrimonial home. A 1% ownership of a property as an owner in a tenant in common could potentially expose the insolvent debtor and the non-bankrupt owner to a claim of 50% or more by a trustee.

Also, a trustee may have a claim to an interest in a matrimonial home, the title of which is registered in the sole name of the non-bankrupt spouse.

In other words, the trustee’s claim can be higher or lower than the nominal value of ownership registered on title in scenarios where the insolvent debtor has an equitable interest in the property that does not correspond to the ownership proportion.

The doctrines of resultant trusts, presumption of advancement, constructive trusts and survivorship may apply. Advisers and solicitors should familiarise themselves with these concepts to better assess the trustee’s claim and the overall consequences of bankruptcy.

Example 3 – trustee’s claim larger than ownership proportion on title

The following scenarios could lead to a trustee making a larger claim to a beneficial interest in the property than the interest of the bankrupt recorded on the title of the property:

The property was purchased with the intention of the bankrupt being the ultimate beneficial owner of the property;
The bankrupt has made significant financial contributions to the acquisition of the property registered in the sole name of another person.
The property was purchased in the sole name of one of the spouses whilst it eventuates that it was intended to be their matrimonial property. (Re: Trustees of the Property of Cummins (A Bankrupt) v Cummins(2006) 227 CLR 278.)

Settlements for minimal or no equity

Where there is no net equity in the family home at the date of bankruptcy, the bankrupt and their family can continue to occupy their home as long as they maintain their payments of the mortgage, rates and insurance plus maintain the property. Then, when the bankrupt is discharged from bankruptcy which is normally after a 3-year period, they can re-acquire the net equity in the property based on the market value of the property at that time and the amount owing to the mortgagee(s)

Alternatively, where there is a small net equity in the property, but it is not commercial for the property to be sold, the trustee may enter into an agreement whereby the bankrupt or the purchaser (usually the non-bankrupt spouse) agrees to pay an amount equal to the value of the net equity in the property in either a lump sum or by instalments and the trustee agrees that upon receipt of the agreed amount, the trustee will make no further claim to the bankrupt’s interest in the property.

The means by which a trustee can realise the bankrupt’s beneficial interest in a property without the sale of the property is with a formal document or contract known as a Deed of Settlement or Deed of Release normally executed by the trustee and the non-bankrupt co-owner(s) of property.

The deed will ensure that the trustees have no legal right to pursue their interests in the property pursuant to Section 116(1) and 58(1) of the Bankruptcy Act.

The deed will also ensure the trustees have no legal right to pursue their interests in the property after the discharge date pursuant to Sections 127 and 129 of the Bankruptcy Act.

Helping debtors and creditors find the best alternative

As a professional advisor or solicitor, you will often be confronted with a difficult position of providing advice to insolvent clients facing financial hardship and risk losing their family home. Having a knowledge of these factors which influence a trustee’s claim to a beneficial interest in the property, will enable you to provide your clients with an accurate prognosis on the likely consequences of bankruptcy and determine the most optimal alternative available to the insolvent debtor.

Creditors and their advisors can also benefit from a knowledge of the alternatives available by a trustee and the various commercial settlements. Such knowledge will better enable a creditor and their advisor to consider the most optimal strategy in recovering their debt and the cost-benefit analysis of undertaking a court-appointed bankruptcy.

The takeaway from this article is that no matter how difficult the home equity position may appear, there are many different variables at play which could result in the bankrupt and their family retaining possession of their family home.

Furthermore, there is scope for a creditor to derive a dividend from an estate even when the equity in a property is negative, marginal or claimed by other parties.

THE FINAL WORD – We all make mistakes and get caught out from time to time. This is life. We have to learn from all we have done. Imagine, if you had an opportunity to right a mistake you would. A debt solution is no difference.

You will have some consequences due to the solution and that is the lesson being applied. Many powerful people have been bankrupt before and have gone on to be very successful. The best ones that come to mind are Sir Richard Branson (owner of the Virgin brand) Donald Trump (US President) Mike Tyson (Boxer) they have all gone on to become successful after becoming bankrupt.

Debt solutions is not a death sentence, but living with debt is. The longer you leave the debt situation, the stress and anxiety increases and could affect mental health.

Do something today and speak with an expert. At Armada we are proud at what we do. We are a family business and built on family values. We will give you the honest solution. We do this, because we know what you are going through and we know how good your life will be after the debt solution is in place.

Armada offer a FREE ASSESSMENT to every client. This is done with NO OBLIGATION. If you want to get a FREE assessment then just click here.

Main Story Author profile – Anthony Bagala (DVT Group)

Anthony recently became a registered trustee in bankruptcy and senior manager at dVT Group and has over 15 years of knowledge handling a wide range of personal and corporate insolvency administrations and restructuring.

Anthony engages clients and stakeholders with empathy and compassion and conducts himself with a strong sense of ethics and a service orientation to the stakeholders and affected parties.