What You Need to Know About Debt Agreements

Most Australians wrestle with financial difficulties during their lifetime, and this is generally considered a standard fluctuation in our finances. But what if you’re not able to resolve these challenges yourself, but at the same time, you don’t want to file for bankruptcy?

Debt consolidation loans are a customary solution that relieves people of financial stress by consolidating all their current debts into one easy to manage loan that’s payable every month. Likewise, 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 basically a legal contract between you and your lenders which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to pay back a sum of money that you can manage, 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 repercussions which may have an effect on your ability to secure credit in the future. As a result, it’s strongly recommended that individuals seek independent financial advice before making this decision to make sure this is the best approach for their financial situation and they clearly grasp the repercussions of such agreements.

Prior to entering a debt agreement

There are a number of things one should take into consideration prior to entering into a debt agreement. Speaking to your lenders about your financial condition is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you spoken to your financial institutions 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 not able to pay unsecured debts. Not all types of debt are covered in debt agreements, including the following:

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

Are you eligible to enter a debt agreement?

To find 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 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 creditors. If your creditors agree to the terms of your agreement, then your debt agreement will begin, for example, paying 75% of your debts to creditors over a 3-year time period.

Disadvantages of debt agreements

As stated earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are severe repercussions one must contemplate.

•  If your creditors 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 listed on your credit report for up to five years, or longer in some situations
•  You are legally required to alert a new creditor of your debt agreement when acquiring a loan over $5,703.
•  If you own a business trading under another name, you are legally obliged to reveal your debt agreement to any person who deals with your firm.
•  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 an integral role in the success of your debt agreement, so always choose 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 not sure if a debt agreement is the right option for you, get in contact with Fresh Start Solutions Hobart on 1300 818 575 who can give you the right advice, the first time. For additional information, visit https://freshstartsolutions.com.au/bankruptcy-hobart.