A lot of Australians deal with financial troubles during their lifetime, and this is often regarded as a natural fluctuation in our finances. But what if you’re unable to work out these challenges yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a common solution that relieves people of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable monthly. 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 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 time period, 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 secure credit in the future. For this reason, it’s strongly encouraged that folks seek independent financial guidance before making this decision to ensure this is the best alternative for their financial circumstances and they clearly understand the implications of such agreements.
Prior to entering a debt agreement
There are certain things one should take into account before entering into a debt agreement. Reaching out to your lenders 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 creditors and asked them for more time to repay your debt? Have you already tried to discuss a repayment plan or a smaller payment to repay 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 example mortgages 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
- Offshore debt
- Other debts – such as debts incurred by child support, student HECS debts, court fines, and fraud
Are you entitled to enter a debt agreement?
To ascertain 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 approach for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your lenders. If your creditors accept the terms of your agreement, then your debt agreement will commence, for example, paying 85% of your debts to lenders over a 3-year time period.
Drawbacks of debt agreements
As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe repercussions 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 shown on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to advise a new creditor of your debt agreement when receiving a loan over $5,703.
- If you own a company trading under another name, you are legally required 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 important 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. Prices also vary widely between administrators, so always look at the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right option for you, speak to Bankruptcy Experts Frankston on 1300 795 575 who can give you the right advice, the first time. For more information, visit www.bankruptcyexpertsfrankston.com.au.