What You Should Know About Debt Agreements
A lot of Australians go through financial issues during their lifetime, and this is largely regarded as a standard fluctuation in our finances. But what if you’re not able to work through these issues yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a standard option that relieves people of financial anxiety by consolidating all their current debts into one easy to manage loan that’s payable every month. Likewise, debt agreements are another solution 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 fundamentally 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 repay a sum of money that you can manage, over an arranged time period, to settle your debts.
It is crucial 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 receive credit down the road. As a result, it’s strongly encouraged that people seek independent financial advice before making this decision to ensure this is the best choice for their financial circumstances and they clearly grasp the repercussions of such agreements.
Prior to entering a debt agreement
There are several things one should consider before entering into a debt agreement. Speaking to your financial institutions about your financial condition is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you talked to your creditors and asked them for more time to repay your debt? Have you already tried to discuss a repayment plan or a smaller payment to repay your debt?
What kinds of debts are covered 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, 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, financial institutions can request that your partner repays the full amount if you’re unable to
- Foreign debt
- Other debts – for example debts incurred by student HECS or HELP debts, fraud, child support, and court fines
Are you eligible to enter a debt agreement?
To ascertain 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 decide that a debt agreement is the best option 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 financial institutions 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 period.
Downsides of debt agreements
As mentioned 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 mentioned on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to inform a new creditor of your debt agreement when obtaining a loan over $5,703.
- If you own a company trading under another name, you are legally required to reveal 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.
Select your debt agreement administrator diligently.
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 review the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right alternative for you, speak to Bankruptcy Experts Joondalup on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertsjoondalup.com.au.