September 12, 2018 0

What You Need to Know About Debt Agreements

Posted by:Charles Bosse onSeptember 12, 2018

A large number of Australians go through financial issues during their lifetime, and this is mainly regarded as a standard fluctuation in our finances. But what if you’re not able to work through these problems yourself, but at the same time, you don’t want to file for bankruptcy?

Debt consolidation loans are a customary solution that relieves individuals of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable every month. On the contrary, debt agreements are another solution available to individuals in financial distress, and this will be the focus of today’s article.

 

What is a debt agreement?

A debt agreement is essentially a legal contract between you and your lenders which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your financial institutions allow you to pay off a sum of money that you can afford, over an agreed period of time, to settle your debts.

It is essential to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may affect your ability to receive credit down the road. Subsequently, it’s strongly encouraged that people seek independent financial counselling before making this decision to make sure this is the best choice for their financial circumstances and they clearly grasp the repercussions of such agreements.

 

Prior to entering a debt agreement

There are certain things one should think about prior to entering into a debt agreement. Talking to your financial institutions about your financial predicament is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you spoken with your creditors and asked them for more time to repay your debt? Have you already tried to negotiate a repayment plan or a smaller payment to settle your debt?

 

What types 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 kinds of debt are covered in debt agreements, such as the following:

  •  Secured debt – such as home loans where the property can be sold to recoup money
  •  Joint debt – if you have a joint debt with your partner, lenders can demand that your partner repays the full amount if you’re unable to
  •  Offshore debt
  •  Other debts – for example debts incurred by fraud, child support, student HECS or HELP debts, and court fines

 

Are you eligible to enter a debt agreement?

To figure out if you are eligible, 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 elect 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 financial institutions. If your financial institutions agree to the terms of your agreement, then your debt agreement will begin, for instance, paying 80% of your debts to creditors over a 3-year period.

 

Drawbacks of debt agreements

As stated earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious repercussions one must take into consideration.

  •  If your lenders reject 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 detailed on your credit report for up to five years, or longer in some situations
  •  You are legally required to notify a new financial institution of your debt agreement when receiving a loan over $5,703.
  •  If you own an enterprise trading under another name, you are legally obliged to reveal your debt agreement to anybody who deals with your business.
  •  If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.

 

Choose your debt agreement administrator mindfully.

Debt agreement administrators play an integral role in the success of your debt agreement, so always go with an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also fluctuate widely between administrators, so always read the payment terms prior to making any decisions.

If you’re still not sure if a debt agreement is the right choice for you, phone Fresh Start Solutions Sydney on 1300 818 575 who can give you the right advice, the first time. For more details, visit http://freshstartsolutions.com.au/bankruptcy-sydney.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyrights © Fresh Start Solution.