A lot of Australians experience financial headaches during their lifetime, and this is often considered a typical 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 declare bankruptcy?
Debt consolidation loans are a popular option that relieves folks of financial stress 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 distress, 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 creditors which comprises 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 time period, to settle your debts.
It’s important to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may have an effect on your ability to receive credit down the road. For this reason, it’s strongly encouraged that folks seek independent financial guidance before making this decision to make sure this is the best approach 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 consider prior to entering into a debt agreement. Talking to your financial institutions about your financial condition is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you talked with your lenders and asked them for extra time to settle your debt? Have you already attempted 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 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 instance home 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
- Offshore debt
- Other debts – for example debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you entitled to enter a debt agreement?
To ascertain 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 determine that a debt agreement is the best alternative 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 creditors. If your lenders agree to the terms of your agreement, then your debt agreement will commence, for example, paying 75% of your debts to creditors over a 3-year time period.
Disadvantages of debt agreements
As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are significant implications one must take into account.
- 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 circumstances
- You are legally obliged to advise a new lender of your debt agreement when acquiring a loan over $5,703.
- If you own a company trading under another name, you are legally obliged to reveal your debt agreement to anybody 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 cautiously.
Debt agreement administrators play an integral role in the success of your debt agreement, so always go with an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also vary widely between administrators, so always examine the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right option for you, phone Bankruptcy Experts Gold Coast on 1300 879 867 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertsgoldcoast.com.au.