September 12, 20180

What You Should Understand About Debt Agreements

Posted by:Charles Bosse onSeptember 12, 2018

A lot of Australians wrestle with financial difficulties during their lifetime, and this is mainly considered a standard fluctuation in our finances. But what if you’re not able to work out these problems 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 each month. Alternatively, debt agreements are another option available to individuals 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 lenders allow you to pay back a sum of money that you can afford, over an arranged time period, 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 consequences which may affect your ability to secure credit down the track. For this reason, it’s strongly recommended that people seek independent financial guidance before making this decision to ensure this is the best choice for their financial situation and they clearly recognise the consequences of such agreements.

 

Prior to entering a debt agreement

There are several things one should contemplate before entering into a debt agreement. Speaking with your financial institutions about your financial circumstance is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you spoken to your lenders and asked them for additional time to repay your debt? Have you already tried to discuss a repayment plan or a smaller payment to settle your debt?

 

What kinds of debts are included in debt agreements?

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

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

 

Are you eligible to enter a debt agreement?

To find out 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 decide that a debt agreement is the best solution for you, a debt agreement administrator will help you with your debt agreement proposals, based on what you can afford, and deliver this proposal to each of your financial institutions. If your financial institutions accept the terms of your agreement, then your debt agreement will begin, for example, paying 85% of your debts to creditors over a 3-year time period.

 

Drawbacks of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious repercussions one must take into consideration.

  •  If your creditors 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 noted on your credit report for up to five years, or longer in some circumstances
  •  You are legally obliged to inform a new financial institution of your debt agreement when obtaining a loan over $5,703.
  •  If you own a business 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 a bearing 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 select an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also vary widely between administrators, so always examine the payment terms before making any decisions.

If you’re still unsure if a debt agreement is the right option for you, speak with Fresh Start Solutions Sunshine Coast on 1300 818 575 who can give you the right advice, the first time. For additional information, visit https://freshstartsolutions.com.au/bankruptcy-sunshinecoast.

 

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