Many Australians encounter financial troubles during their lifetime, and this is mainly considered a typical fluctuation in our finances. But what if you’re not able to resolve these troubles yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a standard solution that relieves folks of financial stress by consolidating all their current debts into one easy to manage loan that’s payable each month. On the other hand, debt agreements are another option 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 effectively a legal contract between you and your lenders which comprises 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 period of time, to settle your debts.
Itis critical to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial consequences which may have an effect on your ability to obtain credit down the road. For this reason, it’s strongly recommended that folks seek independent financial counselling before making this decision to make sure this is the best choice for their financial situation and they clearly grasp the repercussions of such agreements.
Prior to entering a debt agreement
There are specific things one should take into account prior to entering into a debt agreement. Talking with your financial institutions about your financial position is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you talked with your creditors and asked them for extra time to settle your debt? Have you already tried to arrange 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, including the following:
- Secured debt – for instance home loans where the property can be sold to recoup money
- Joint debt – if you have a joint debt with a partner, lenders can demand that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – such as debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you entitled to enter a debt agreement?
To check 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 elect that a debt agreement is the best choice for you, a debt agreement administrator will assist you with your debt agreement proposals, based upon what you can afford, and deliver this proposal to each of your financial institutions. If your creditors accept the terms of your agreement, then your debt agreement will start, for example, paying 80% of your debts to creditors over a 3-year time period.
Disadvantages of debt agreements
As explained earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are severe repercussions one must take into account.
- 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 mentioned on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to inform a new lender 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 business.
- If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.
Decide on your debt agreement administrator carefully.
Debt agreement administrators play a key 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 look at the payment terms before making any decisions.
If you’re still uncertain if a debt agreement is the right approach for you, talk to Bankruptcy Experts Cassowary Coast on 1300 795 575 who can give you the right advice, the first time. For more information, visit www.bankruptcyexpertscassowarycoast.com.au.