What You Should Know About Debt Agreements

Tips on How to Manage Your Financial Difficulties
September 20, 2018
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A large number of Australians go through financial problems during their lifetime, and this is mainly considered a standard fluctuation in our finances. But what if you’re not able to work out these troubles yourself, but at the same time, you don’t want to file for bankruptcy?

 

Debt consolidation loans are a standard option that relieves folks of financial stress by consolidating all their current debts into one easy to manage loan that’s payable every month. Conversely, 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 essentially a legal contract between you and your creditors which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to repay a sum of money that you can afford, over an arranged time frame, to settle your debts.

 

It is necessary to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may have a bearing on your capacity to secure credit in the future. Subsequently, 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 implications of such agreements.

 

Before entering a debt agreement

There are several things one should contemplate before entering into a debt agreement. Talking with your lenders about your financial circumstance is always the first step you should take to try to work out your debts outside of a debt agreement. Have you talked with your financial institutions and asked them for additional time to settle your debt? Have you already attempted to work out a repayment plan or a smaller payment to settle your debt?

 

What kinds of debts are included in debt agreements?

Debt agreements are designed to help 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 example home loans where the property can be sold to recover money
  •  Joint debt – if you have a joint debt with a partner, lenders can request that your partner repays the full amount if you’re unable to
  •  Foreign debt
  •  Other debts – such as debts incurred by fraud, student HECS or HELP debts, court fines, 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 elect that a debt agreement is the best approach for you, a debt agreement administrator will help you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your creditors. If your financial institutions accept the terms of your agreement, then your debt agreement will commence, for instance, paying 85% of your debts to creditors over a 3-year time frame.

 

Drawbacks 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 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 situations
  •  You are legally obliged to notify a new financial institution of your debt agreement when securing a loan over $5,703.
  •  If you own an enterprise trading under another name, you are legally obliged to reveal your debt agreement to any person who deals with your business.
  •  If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.

 

Select your debt agreement administrator cautiously.

Debt agreement administrators play a vital role in the results of your debt agreement, so always choose an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also fluctuate widely between administrators, so always look into the payment terms prior to making any decisions.

 

If you’re still uncertain if a debt agreement is the right approach for you, phone Bankruptcy Experts Penrith on 1300 795 575 who can give you the right advice, the first time. To find out more, visit www.bankruptcyexpertspenrith.com.au.

 

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