September 12, 20180

What You Should Know About Debt Agreements

Posted by:Charles Bosse onSeptember 12, 2018

A lot of Australians wrestle with financial difficulties during their lifetime, and this is often regarded as a standard fluctuation in our finances. But what if you’re not able to address these difficulties yourself, but at the same time, you don’t want to declare bankruptcy?

Debt consolidation loans are a common option that relieves people of financial strain by consolidating all their current debts into one easy to manage loan that’s payable monthly. Conversely, debt agreements are another possibility 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 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 arranged time frame, 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 have a bearing on your ability to acquire credit down the road. Consequently, it’s strongly recommended that people seek independent financial advice before making this decision to ensure this is the best alternative for their financial situation and they clearly grasp the implications of such agreements.

 

Prior to entering a debt agreement

There are several things one should take into consideration prior to entering into a debt agreement. Talking with your financial institutions about your financial position 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 more time to repay your debt? Have you already tried to discuss a repayment plan or a smaller payment to settle your debt?

 

What types 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 instance home loans where the property can be sold to recover money
  •  Joint debt – if you have a joint debt with an associate, creditors can demand that your partner repays the full amount if you’re unable to
  •  Foreign 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 determine 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 determine that a debt agreement is the best answer for you, a debt agreement administrator will help you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your lenders. If your financial institutions accept the terms of your agreement, then your debt agreement will commence, for instance, paying 85% 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 consequently there are severe implications one must contemplate.

  •  If your lenders 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 shown on your credit report for up to five years, or longer in some situations
  •  You are legally obliged to inform a new lender of your debt agreement when acquiring a loan over $5,703.
  •  If you own a company trading under another name, you are legally obliged to disclose your debt agreement to anybody who deals with your enterprise.
  •  If your job belongs to a regulated profession or a position of trust, it may have a bearing on your employment.

 

Choose your debt agreement administrator carefully.

Debt agreement administrators play a key 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. Fees 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, talk to Fresh Start Solutions Darwin on 1300 818 575 who can give you the right advice, the first time. For additional information, visit https://freshstartsolutions.com.au/bankruptcy-darwin.

 

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