What You Should Know About Debt Agreements
Many Australians wrestle with financial difficulties during their lifetime, and this is mainly considered a standard fluctuation in our finances. But what if you’re not able to address these challenges yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a customary solution that relieves people of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable every month. Likewise, debt agreements are another solution available to people in financial distress, and this will be the focus of today’s article.
What is a debt agreement?
A debt agreement is fundamentally a legal contract between you and your lenders which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to pay off a sum of money that you can manage, over an arranged time frame, to settle your debts.
It is vital to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial consequences which may impact your capacity to receive credit down the track. Subsequently, it’s strongly encouraged that people seek independent financial counselling before making this decision to make sure this is the best alternative for their financial situation and they clearly grasp the repercussions of such agreements.
Before entering a debt agreement
There are a number of things one should think about before entering into a debt agreement. Speaking to your financial institutions about your financial predicament is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you talked to your creditors and asked them for additional time to settle your debt? Have you already tried to discuss a repayment plan or a smaller payment to repay your debt?
What kinds of debts are covered in debt agreements?
Debt agreements are designed to assist low income earners who are unable to pay unsecured debts. Not all types of debt are covered in debt agreements, such as the following:
– Secured debt – for example home mortgages where the property can be sold to recoup money
– Joint debt – if you have a joint debt with a partner, financial institutions can demand that your partner repays the full amount if you’re unable to
– Offshore debt
– Other debts – for example debts incurred by fraud, student HECS or HELP debts, court fines, and child support
Are you eligible to enter a debt agreement?
To find out if you are qualified, just visit the Australian Financial Security Authority’s (AFSA) website (https://www.afsa.gov.au/insolvency/i-cant-pay-my-debts/am-i-eligible-debt-agreement).
If you decide that a debt agreement is the best approach for you, a debt agreement administrator will help you with your debt agreement proposals, based upon what you can afford, and send this proposal to each of your creditors. If your creditors accept the terms of your agreement, then your debt agreement will commence, for example, paying 80% of your debts to financial institutions over a 3-year time frame.
Disadvantages of debt agreements
As explained earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious implications one must take into account.
- If your financial institutions refuse your debt agreement proposal, they can make an application to the courts for involuntary bankruptcy
- Your name will appear on the National Personal Insolvency Index (NPII) for 5 years from the date of your agreement, or 2 years after the end date, whichever is later
- Your debt agreement will be recorded on your credit report for up to five years, or longer in some situations
- You are legally required to alert a new lender of your debt agreement when securing a loan over $5,703.
- If you own a company trading under another name, you are legally required to reveal your debt agreement to any person who deals with your firm.
- If your job belongs to a regulated profession or a position of trust, it may affect your employment.
Select your debt agreement administrator mindfully.
Debt agreement administrators play a vital role in the results of your debt agreement, so always select an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also vary widely between administrators, so always read the payment terms prior to making any decisions.
If you’re still uncertain if a debt agreement is the right solution for you, call Bankruptcy Experts Melbourne on 1300 795 575 who can give you the right advice, the first time. For more information, visit www.bankruptcyexpertsmelbourne.com.au.