September 12, 20180

What You Should Know About Debt Agreements

Posted by:Charles Bosse onSeptember 12, 2018

Many Australians deal with financial difficulties during their lifetime, and this is largely regarded as a standard fluctuation in our finances. But what if you’re unable to work through these challenges yourself, but at the same time, you don’t want to file for bankruptcy?

Debt consolidation loans are a customary option that relieves people of financial strain by consolidating all their current debts into one easy to manage loan that’s payable every month. On the other hand, debt agreements are another solution available to people in financial hardship, and this will be the focus of today’s article.

 

What is a debt agreement?

A debt agreement is fundamentally 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 back a sum of money that you can afford, over an arranged time frame, to settle your debts.

It’s important to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial consequences which may have a bearing on your capacity to secure credit down the road. As a result, it’s strongly recommended that people seek independent financial advice before making this decision to make sure this is the best alternative for their financial situation and they clearly grasp the repercussions of such agreements.

 

Before entering a debt agreement

There are a number of things one should consider before entering into a debt agreement. Reaching out to your financial institutions about your financial situation 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 creditors and asked them for additional time to settle your debt? Have you already attempted to negotiate a repayment plan or a smaller payment to settle your debt?

 

What kinds of debts are covered in debt agreements?

Debt agreements are designed to assist low income earners who are unable to pay unsecured debts. Not all kinds of debt are covered in debt agreements, including the following:

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

 

Are you eligible to enter a debt agreement?

To check 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 decide that a debt agreement is the best alternative for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your financial institutions. If your lenders accept the terms of your agreement, then your debt agreement will commence, for example, paying 85% of your debts to creditors over a 3-year period.

 

Downsides of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe implications one must take into consideration.

  •  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 detailed on your credit report for up to five years, or longer in some circumstances
  •  You are legally obliged to inform a new lender of your debt agreement when securing a loan over $5,703.
  •  If you own a company trading under another name, you are legally required 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 an effect on your employment.

 

Decide on your debt agreement administrator carefully.

Debt agreement administrators play an integral role in the results 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 inspect the payment terms prior to making any decisions.

If you’re still not sure if a debt agreement is the right option for you, talk with Fresh Start Solutions Melbourne on 1300 818 575 who can give you the right advice, the first time. To find out more, visit https://freshstartsolutions.com.au/bankruptcy-melbourne.

 

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