September 11, 20180

What You Should Know About Debt Agreements

Posted by:Charles Bosse onSeptember 11, 2018

Many Australians go through financial difficulties during their lifetime, and this is largely considered a typical fluctuation in our finances. But what if you’re not able to work out these difficulties yourself, but at the same time, you don’t want to declare bankruptcy?

 

Debt consolidation loans are a customary solution that relieves folks of financial stress by consolidating all their current debts into one easy to manage loan that’s payable every month. Alternatively, debt agreements are another solution 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 ultimately a legal contract between you and your lenders which comprises 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’s important to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial repercussions which may impact your ability to secure credit down the track. For this reason, it’s strongly recommended that folks seek independent financial counselling before making this decision to make sure this is the best alternative for their financial situation and they clearly recognise the repercussions of such agreements.

 

Before entering a debt agreement

There are a number of things one should take into account prior to entering into a debt agreement. Reaching out to your lenders about your financial predicament is always the first step you should take to try to settle your debts outside of a debt agreement. Have you spoken with your financial institutions and asked them for additional time to repay your debt? Have you already tried to work out 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 – for example home loans where the property can be sold to recoup money
  •  Joint debt – if you have a joint debt with an associate, creditors can request that your partner repays the full amount if you’re unable to
  •  Foreign 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 discover 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 elect that a debt agreement is the best approach 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 lenders. If your lenders agree to the terms of your agreement, then your debt agreement will commence, for instance, paying 75% of your debts to creditors over a 3-year time period.

 

Downsides of debt agreements

As stated earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious repercussions 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 noted on your credit report for up to five years, or longer in some situations
  •  You are legally required to alert a new financial institution of your debt agreement when securing a loan over $5,703.
  •  If you own a firm trading under another name, you are legally obliged to disclose your debt agreement to any individual 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 cautiously.

Debt agreement administrators play a vital 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 unsure if a debt agreement is the right alternative for you, talk to Fresh Start Solutions on 1300 818 575 who can give you the right advice, the first time. To learn more, visit https://freshstartsolutions.com.au.

 

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