What You Need to Understand About Debt Agreements
Many Australians suffer through financial challenges during their lifetime, and this is generally considered a typical fluctuation in our finances. But what if you’re unable to work out these issues yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a common option that relieves people of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable each month. Moreover, 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 ultimately a legal contract between you and your lenders 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 agreed time frame, 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 capacity to receive credit down the track. As a result, it’s strongly recommended that folks seek independent financial advice before making this decision to ensure this is the best alternative for their financial situation and they clearly recognise the implications of such agreements.
Prior to entering a debt agreement
There are several things one should contemplate prior to entering into a debt agreement. Talking to your lenders about your financial condition is always the first step you should take to try to settle your debts outside of a debt agreement. Have you spoken to your financial institutions and asked them for extra time to repay your debt? Have you already tried to discuss a repayment plan or a smaller payment to repay your debt?
What types of debts are included 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 an associate, lenders can request that your partner repays the full amount if you’re unable to
- Foreign debt
- Other debts – for instance debts incurred by fraud, student HECS or HELP debts, court fines, and child support
Are you eligible to enter a debt agreement?
To discover 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 decide 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 deliver this proposal to each of your lenders. If your lenders accept the terms of your agreement, then your debt agreement will commence, for instance, paying 90% of your debts to lenders over a 3-year time period.
Drawbacks of debt agreements
As stated earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious repercussions one must contemplate.
- If your financial institutions reject 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 situations
- You are legally required to alert a new creditor of your debt agreement when receiving a loan over $5,703.
- If you own a company trading under another name, you are legally obliged to reveal your debt agreement to any individual who deals with your company.
- If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.
Choose your debt agreement administrator carefully.
Debt agreement administrators play a vital role in the results of your debt agreement, so always decide on an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also vary widely between administrators, so always check the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right alternative for you, get in contact with Bankruptcy Experts Wollongong on 1300 795 575 who can give you the right advice, the first time. To find out more, visit www.bankruptcyexpertswollongong.com.au.