September 19, 2018Comments Closed

What You Should Know About Debt Agreements

Posted by:admin onSeptember 19, 2018

Many Australians encounter financial troubles during their lifetime, and this is often regarded as a standard fluctuation in our finances. But what if you’re unable to resolve these challenges yourself, but at the same time, you don’t want to declare bankruptcy?

 

Debt consolidation loans are a popular solution that relieves folks of financial stress by consolidating all their current debts into one easy to manage loan that’s payable monthly. Alternatively, debt agreements are another approach 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 essentially a legal contract between you and your financial institutions which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your financial institutions allow you to pay off 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 implications which may impair your ability to acquire credit in the future. For this reason, it’s strongly recommended that folks seek independent financial guidance before making this decision to make sure this is the best choice for their financial circumstances and they clearly understand the consequences of such agreements.

 

Before entering a debt agreement

There are several things one should think about prior to entering into a debt agreement. Talking with your lenders about your financial condition is always the first step you should take to try to settle your debts outside of a debt agreement. Have you talked with your creditors and asked them for more time to repay 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 unable 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 recover 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, child support, student HECS or HELP debts, and court fines

 

Are you eligible to enter a debt agreement?

To find out 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 decide that a debt agreement is the best option for you, a debt agreement administrator will assist you with your debt agreement proposals, based upon what you can afford, and send this proposal to each of your lenders. If your financial institutions accept the terms of your agreement, then your debt agreement will begin, for instance, paying 85% of your debts to lenders over a 3-year time frame.

 

Drawbacks of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are severe implications one must take into consideration.

  •  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 shown on your credit report for up to five years, or longer in some circumstances
  •  You are legally obliged to alert a new financial institution of your debt agreement when securing 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 business.
  •  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 diligently.

Debt agreement administrators play a vital role in the results of your debt agreement, so always select an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also vary widely between administrators, so always check the payment terms before making any decisions.

 

If you’re still uncertain if a debt agreement is the right approach for you, speak to Bankruptcy Experts Ipswich on 1300 795 575 who can give you the right advice, the first time. To learn more, visit www.bankruptcyexpertsipswich.com.au.

 

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