What You Should Know About Debt Agreements
Many Australians suffer through financial issues during their lifetime, and this is mainly considered a typical fluctuation in our finances. But what if you’re unable to work out these difficulties yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a customary solution that relieves folks of financial anxiety by consolidating all their current debts into one easy to manage loan that’s payable monthly. On the other hand, debt agreements are another possibility 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 essentially 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 back 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 implications which may affect your ability to acquire credit in the future. Consequently, it’s strongly recommended that individuals seek independent financial guidance before making this decision to make sure this is the best option for their financial circumstances and they clearly recognise the consequences of such agreements.
Prior to entering a debt agreement
There are several things one should take into account before entering into a debt agreement. Reaching out to your financial institutions about your financial position is always the first step you should take to try to settle your debts outside of a debt agreement. Have you spoken with your lenders and asked them for extra 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 kinds of debt are covered in debt agreements, including the following:
- Secured debt – for instance mortgages where the property can be sold to recover money
- Joint debt – if you have a joint debt with your partner, lenders can request that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – for example debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you eligible to enter a debt agreement?
To determine if you are eligible, 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 solution for you, a debt agreement administrator will assist you with your debt agreement proposals, based upon what you can afford, and send this proposal to each of your creditors. If your creditors agree to the terms of your agreement, then your debt agreement will start, for example, paying 75% of your debts to lenders over a 3-year time period.
Downsides of debt agreements
As stated earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe repercussions one must keep in mind.
- 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 mentioned on your credit report for up to five years, or longer in some situations
- You are legally required to inform a new financial institution of your debt agreement when obtaining a loan over $5,703.
- If you own an enterprise trading under another name, you are legally obliged to disclose your debt agreement to any individual who deals with your business.
- If your job belongs to a regulated profession or a position of trust, it may affect your employment.
Decide on your debt agreement administrator diligently.
Debt agreement administrators play a vital role in the results of your debt agreement, so always opt for an administrator that is registered with AFSA’s list of registered debt agreement administrators. Fees also fluctuate widely between administrators, so always look into the payment terms before making any decisions.
If you’re still unclear if a debt agreement is the right approach for you, talk to Bankruptcy Experts Canberra on 1300 795 575 who can give you the right advice, the first time. To read more, visit www.bankruptcyexpertscanberra.com.au.