Beating credit card bankruptcy in Australia

Increasing numbers of people are finding it difficult to manage their finances, including their credit card debt.
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail

Citigroup Sells Crowns Jewels after Subprime fallout

CITIGROUP is in talks to sell a majority stake in Smith Barney, the brokerage firm, to Morgan Stanley in a deal that would create the world's biggest wealth manager.
Picture: APThe negotiations came to light as Robert Rubin, the former US Treasury Secretary, resigned as senior counsellor and director of Citigroup after months of criticism for his role in leading what was once the world’s largest bank to the brink of collapse.
Under the deal being discussed by Morgan Stanley and Citigroup, 51 per cent of Smith Barney will be sold to Morgan Stanley with an option to buy the rest of the business within five years.
Morgan Stanley declined to comment on the talks and Citigroup did not respond to requests for comment. It was not clear how much the deal would cost Morgan Stanley.
The banks are expected to work through the weekend to finalise the terms of the deal. The merger would help Morgan Stanley, which converted to a bank holding company last year and subsequently received $US10 billion ($14 billion) in Government aid, to diversify.
Citigroup, which has taken $US45 billion in government funding, is likely to welcome the additional capital that the deal would provide. The move is also in line with the strategy of Vikram Pandit, the Citigroup chief executive, to downsize the business after the sub-prime debacle. Citigroup is dismissing 52,000 of its workers after it made $US20 billion in credit-related losses.
The bank also announced the resignation of Mr Rubin, who was Treasury Secretary from 1995 to 1999. In a letter to Mr Pandit, Mr Rubin said: “My great regret is that I and so many of us who have been involved in this industry for so long did not recognise the serious possibility of the extreme circumstances that the financial system faces today.”
Mr Rubin, who joined Citigroup in 1999, has been excoriated in the media as the force behind the bank’s decision to chase profits by pushing into risky credit-related products. His duties at the bank, other than using his network to attract clients, were not clear, but insiders said that his influence was pervasive.
In his time at Citigroup, Mr Rubin collected about $US150 million in remuneration.
Before becoming Treasury Secretary, Mr Rubin, who is a graduate of Harvard and Yale Law School, had a long career at Goldman Sachs, where he started on the arbitrage trading desk and worked his way up to become co-chairman of the elite bank.
Shares in Citigroup closed in New York at $US6.75, down by 5.7 per cent.

British rate cut awaits London investors next week

British rate cut awaits London investors next week
Market watch top headlinesAustralian reportsAust markets: Australian share market closes higherAust dollar report: Aussie dollar closes at eight-week lowAust credit close: Aussie bonds closes mixedWorld reportsWorld commodities: Oil prices mixed, gold higherWorld markets: US stocks fall sharplyStocks to watchERA, AXA, COF, OZL, ORI, HVN, TAH, REU, RAT, AFG, HGG, GNS,
LONDON, Jan 30 AFPJanuary 31 2009, 06:33AMBritain is next week braced for yet another cut in interest rates to record low levels but it may not be enough to boost the London stock market as recession weighs on the economy, traders said.
The FTSE 100 index of leading shares closed on Friday at 4,149.64 points, up 2.39 per cent or 97.17 points from a week earlier.
The Bank of England (BoE) is widely expected to slash British borrowing costs by a further 50 basis points to 1 per cent at a meeting on Thursday.Now at 1.5 per cent, interest rates are at the lowest level since the British central bank was formed in 1694.
Next week also sees earnings results from energy giant BP, telecommunications group Vodafone and pharmaceutical company GlaxoSmithKline.
This week, a statement from Barclays bank stressing it did not need a government bailout following speculation to the contrary sent its share price and those of its peers rocketing.
Some of the gains were lost as the weekend approached due to "poor earnings and bleak labour and housing market data from the US, heightening fears of a deeper global recession", said City Index market strategist Nick Serff.
"This ended a four-day surge for the major indexes, their best performance in two months," he said.
Another notable British corporate announcement this week came from Anglo-Dutch energy giant Royal Dutch Shell, which said it had made a net loss of $US2.81 billion ($A4.3 billion) in the final quarter of 2008 on plunging oil prices.
The loss compared with a net profit of $US8.47 billion ($A13 billion) during the fourth quarter of 2007, when crude prices were far higher, Europe's largest oil company said.