What You Should Know About Debt Agreements

Posted by:Charles Bosse onSeptember 12, 2018

A large number of Australians experience financial troubles during their lifetime, and this is often considered a standard fluctuation in our finances. But what if you’re not able to work through these problems yourself, but at the same time, you don’t want to declare bankruptcy?

Debt consolidation loans are a common option that relieves folks of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable every month. Alternatively, debt agreements are another approach available to individuals 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 financial institutions which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to pay off a sum of money that you can afford, over an arranged 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 consequences which may have a bearing on your ability to acquire credit down the track. Subsequently, it’s strongly encouraged that individuals seek independent financial counselling before making this decision to ensure this is the best solution for their financial situation and they clearly grasp the consequences of such agreements.

Prior to entering a debt agreement

There are specific things one should consider before entering into a debt agreement. Talking to your financial institutions about your financial circumstance is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you talked with your creditors and asked them for additional time to settle your debt? Have you already tried to work out a repayment plan or a smaller payment to settle your debt?

What types of debts are covered in debt agreements?

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

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

Are you entitled to enter a debt agreement?

To find out 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 determine that a debt agreement is the best approach for you, a debt agreement administrator will help you with your debt agreement proposals, based upon what you can afford, and send this proposal to each of your lenders. If your creditors accept the terms of your agreement, then your debt agreement will commence, for example, paying 75% of your debts to creditors over a 3-year time frame.

Downsides of debt agreements

As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious implications one must consider.

If your financial institutions 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 shown on your credit report for up to five years, or longer in some situations
You are legally obliged to notify 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 anybody who deals with your business.
If your job belongs to a regulated profession or a position of trust, it may affect your employment.

Select your debt agreement administrator carefully.

Debt agreement administrators play a vital role in the results of your debt agreement, so always choose an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also vary widely between administrators, so always examine the payment terms before making any decisions.

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

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