What You Should Understand About Debt Agreements

Many Australians wrestle with financial difficulties during their lifetime, and this is mainly regarded as a normal fluctuation in our finances. But what if you’re not able to work out these difficulties yourself, but at the same time, you don’t want to declare bankruptcy?

Debt consolidation loans are a customary solution that relieves folks of financial anxiety by consolidating all their current debts into one easy to manage loan that’s payable each month. Alternatively, debt agreements are another approach 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 effectively 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 manage, over an agreed time period, 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 consequences which may impact your capacity to receive credit in the future. Subsequently, it’s strongly encouraged that individuals seek independent financial advice before making this decision to ensure this is the best approach for their financial situation and they clearly understand the repercussions of such agreements.

Prior to entering a debt agreement

There are several things one should contemplate prior to entering into a debt agreement. Talking with 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 talked to your financial institutions and asked them for more time to settle your debt? Have you already attempted to arrange a repayment plan or a smaller payment to repay your debt?

What types of debts are covered in debt agreements?

Debt agreements are designed to help low income earners who are not able to pay unsecured debts. Not all types of debt are covered in debt agreements, including the following:

•  Secured debt – for instance mortgages 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 – including debts incurred by fraud, child support, student HECS or HELP debts, and court fines

Are you eligible to enter a debt agreement?

To discover 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 decide that a debt agreement is the best option for you, a debt agreement administrator will help you with your debt agreement proposals, based upon what you can afford, and deliver this proposal to each of your lenders. If your lenders agree to the terms of your agreement, then your debt agreement will commence, for example, paying 90% of your debts to lenders over a 3-year time frame.

Downsides of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious implications one must contemplate.

•  If your financial institutions turn down 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 circumstances
•  You are legally obliged to advise 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 required to disclose your debt agreement to any person 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.

Select your debt agreement administrator diligently.

Debt agreement administrators play an important 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. Costs also vary widely between administrators, so always review the payment terms before making any decisions.

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