What You Should Know About Debt Agreements
Many Australians go through financial troubles during their lifetime, and this is often regarded as a normal fluctuation in our finances. But what if you’re not able to work out these challenges yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a customary option that relieves folks of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable monthly. On the contrary, 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 basically a legal contract between you and your financial institutions which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your lenders allow you to pay off a sum of money that you can afford, over an arranged time frame, 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 repercussions which may have an effect on your ability to secure credit down the track. For this reason, it’s strongly encouraged that individuals seek independent financial counselling before making this decision to ensure this is the best option for their financial situation and they clearly recognise the consequences of such agreements.
Prior to entering a debt agreement
There are a number of things one should consider before entering into a debt agreement. Speaking with your lenders about your financial position is always the first step you should take to try to work out your debts outside of a debt agreement. Have you spoken to your financial institutions and asked them for additional time to repay your debt? Have you already attempted to negotiate 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 types of debt are covered in debt agreements, such as the following:
- Secured debt – such as mortgages where the property can be sold to recoup money
- Joint debt – if you have a joint debt with your partner, creditors can demand that your partner repays the full amount if you’re unable to
- Foreign debt
- Other debts – for example debts incurred by court fines, child support, fraud, and student HECS or HELP debts
Are you entitled to enter a debt agreement?
To determine if you are eligible, 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 answer 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 example, paying 75% of your debts to financial institutions over a 3-year time frame.
Downsides of debt agreements
As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious repercussions one must keep in mind.
- If your financial institutions 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 obliged to alert a new financial institution of your debt agreement when receiving 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 company.
- If your job belongs to a regulated profession or a position of trust, it may have a bearing on your employment.
Choose your debt agreement administrator cautiously.
Debt agreement administrators play an important role in the results of your debt agreement, so always go with an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also fluctuate widely between administrators, so always look into the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right approach for you, call Bankruptcy Experts Tablelands on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertstablelands.com.au.