September 11, 2018 66

What You Should Understand About Debt Agreements

Posted by:Charles Bosse onSeptember 11, 2018

Most Australians encounter financial problems during their lifetime, and this is mainly regarded as a natural fluctuation in our finances. But what if you’re unable to address these difficulties yourself, but at the same time, you don’t want to file for bankruptcy?

Debt consolidation loans are a common option that relieves folks of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable every month. Conversely, debt agreements are another approach 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 creditors 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 afford, over an arranged time frame, to settle your debts.

It is necessary to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may impair your ability to secure credit down the track. Consequently, it’s strongly recommended that individuals seek independent financial counselling before making this decision to make sure this is the best choice for their financial situation and they clearly grasp the consequences of such agreements.

 

Prior to entering a debt agreement

There are specific things one should contemplate prior to entering into a debt agreement. Reaching out to your financial institutions about your financial position is always the first step you should take to try to settle your debts outside of a debt agreement. Have you spoken to your creditors and asked them for extra time to repay your debt? Have you already attempted to discuss a repayment plan or a smaller payment to repay your debt?

 

What kinds of debts are included 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, including the following:

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

 

Are you entitled to enter a debt agreement?

To discover if you are qualified, simply 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 assist you with your debt agreement proposals, based upon what you can afford, and deliver this proposal to each of your creditors. If your financial institutions accept the terms of your agreement, then your debt agreement will start, for instance, paying 85% of your debts to creditors over a 3-year time frame.

 

Drawbacks of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are severe implications one must consider.

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

 

Select your debt agreement administrator mindfully.

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

If you’re still uncertain if a debt agreement is the right choice for you, contact Fresh Start Solutions Adelaide on 1300 818 575 who can give you the right advice, the first time. For more information, visit https://freshstartsolutions.com.au/bankruptcy-adelaide.

 

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