September 11, 20180

What You Should Know About Debt Agreements

Posted by:Charles Bosse onSeptember 11, 2018

A lot of Australians encounter financial headaches during their lifetime, and this is largely considered a typical fluctuation in our finances. But what if you’re unable to work out these issues yourself, but at the same time, you don’t want to file for bankruptcy?

Debt consolidation loans are a standard solution that relieves folks of financial strain by consolidating all their current debts into one easy to manage loan that’s payable each month. Conversely, debt agreements are another option 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 essentially a legal contract between you and your creditors which comprises 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 period of time, to settle your debts.

Itis critical to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial repercussions which may impair your ability to acquire credit down the track. Consequently, it’s strongly recommended that people seek independent financial guidance before making this decision to ensure this is the best solution for their financial situation and they clearly recognise the implications of such agreements.

 

Prior to entering a debt agreement

There are a number of things one should think about prior to entering into a debt agreement. Talking with your lenders about your financial condition is always the first step you should take to try to work out your debts outside of a debt agreement. Have you talked to your lenders and asked them for additional time to repay your debt? Have you already tried to arrange a repayment plan or a smaller payment to repay your debt?

 

What types of debts are included in debt agreements?

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

 

Are you eligible to enter a debt agreement?

To ascertain 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 determine that a debt agreement is the best solution for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and deliver this proposal to each of your lenders. If your financial institutions agree to the terms of your agreement, then your debt agreement will commence, for example, paying 75% of your debts to lenders 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 repercussions one must keep in mind.

  •  If your lenders 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 listed on your credit report for up to five years, or longer in some situations
  •  You are legally obliged to advise a new creditor 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 individual who deals with your enterprise.
  •  If your job belongs to a regulated profession or a position of trust, it may affect your employment.

 

Select your debt agreement administrator diligently.

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

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

 

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