Most Australians deal with financial troubles during their lifetime, and this is often considered a natural fluctuation in our finances. But what if you’re unable to resolve these problems yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a standard solution that relieves individuals of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable every month. Likewise, 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 essentially a legal contract between you and your financial institutions which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to repay a sum of money that you can afford, over an agreed time period, to settle your debts.
It is crucial to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may impair your capacity to secure credit in the future. As a result, it’s strongly encouraged that folks seek independent financial counselling before making this decision to make sure this is the best choice for their financial circumstances and they clearly grasp the repercussions of such agreements.
Prior to entering a debt agreement
There are several things one should take into consideration prior to entering into a debt agreement. Reaching out to your lenders about your financial predicament 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 more time to settle your debt? Have you already attempted to negotiate a repayment plan or a smaller payment to repay your debt?
What types 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 kinds of debt are covered in debt agreements, such as the following:
- Secured debt – for instance mortgages where the property can be sold to recover money
- Joint debt – if you have a joint debt with your partner, financial institutions can request that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – including 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 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 elect 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 send this proposal to each of your financial institutions. If your creditors agree to the terms of your agreement, then your debt agreement will begin, for instance, paying 90% of your debts to creditors over a 3-year time frame.
Drawbacks of debt agreements
As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious repercussions one must contemplate.
- If your financial institutions reject 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 recorded on your credit report for up to five years, or longer in some situations
- You are legally obliged to alert a new creditor of your debt agreement when securing a loan over $5,703.
- If you own an enterprise 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 diligently.
Debt agreement administrators play a vital role in the results of your debt agreement, so always opt for an administrator that is registered with AFSA’s list of registered debt agreement administrators. Fees also vary widely between administrators, so always review the payment terms prior to making any decisions.
If you’re still unclear if a debt agreement is the right choice for you, phone Bankruptcy Experts Maitland on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertsmaitland.com.au.