Many Australians wrestle with financial troubles during their lifetime, and this is mainly considered a typical fluctuation in our finances. But what if you’re unable to resolve these issues yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a standard solution that relieves people of financial strain by consolidating all their current debts into one easy to manage loan that’s payable every month. Conversely, debt agreements are another approach available to individuals in financial hardship, 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 creditors allow you to repay a sum of money that you can manage, over an agreed 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 repercussions which may affect your ability to receive credit down the track. For this reason, it’s strongly encouraged that folks seek independent financial counselling before making this decision to make sure this is the best solution for their financial circumstances and they clearly understand the repercussions of such agreements.
Before entering a debt agreement
There are certain things one should think about before entering into a debt agreement. Speaking to your creditors about your financial predicament is always the first step you should take to try to work out your debts outside of a debt agreement. Have you spoken with your creditors and asked them for extra time to repay your debt? Have you already tried to arrange a repayment plan or a smaller payment to settle your debt?
What types of debts are covered 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, such as the following:
- Secured debt – for example home mortgages where the property can be sold to recoup money
- Joint debt – if you have a joint debt with your partner, lenders can request that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – for instance debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you entitled to enter a debt agreement?
To discover if you are qualified, 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 option for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and deliver this proposal to each of your creditors. If your creditors accept the terms of your agreement, then your debt agreement will start, for instance, paying 80% of your debts to financial institutions over a 3-year time period.
Drawbacks of debt agreements
As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious implications one must take into consideration.
- If your lenders 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 detailed on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to advise a new financial institution 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 anyone who deals with your enterprise.
- If your job belongs to a regulated profession or a position of trust, it may affect your employment.
Choose your debt agreement administrator mindfully.
Debt agreement administrators play an integral 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. Fees also fluctuate widely between administrators, so always review the payment terms before making any decisions.
If you’re still unclear if a debt agreement is the right approach for you, phone Bankruptcy Experts Tamworth on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertstamworth.com.au.