A lot of Australians wrestle with financial issues during their lifetime, and this is often considered a standard fluctuation in our finances. But what if you’re not able to work out these troubles yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a common option 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 solution available to individuals 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 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 afford, over an agreed time period, to settle your debts.
It is vital to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may affect your ability to receive credit down the track. Subsequently, it’s strongly encouraged that people 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 implications of such agreements.
Before entering a debt agreement
There are specific things one should consider prior to entering into a debt agreement. Speaking to your lenders 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 to your creditors and asked them for more time to settle your debt? Have you already tried to negotiate 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 assist low income earners who are not able to pay unsecured debts. Not all kinds of debt are covered in debt agreements, such as the following:
- Secured debt – such as home mortgages where the property can be sold to recover money
- Joint debt – if you have a joint debt with an associate, lenders can demand 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 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 alternative 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 instance, paying 85% of your debts to lenders over a 3-year time frame.
Disadvantages of debt agreements
As mentioned earlier, debt agreements are an ‘act of bankruptcy’ and as a result, there are serious repercussions one must take into consideration.
- 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 noted on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to alert a new creditor of your debt agreement when securing 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 have an effect on your employment.
Choose your debt agreement administrator cautiously.
Debt agreement administrators play an integral role in the success of your debt agreement, so always opt for an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also vary widely between administrators, so always examine the payment terms prior to making any decisions.
If you’re still unsure if a debt agreement is the right choice for you, get in touch with Bankruptcy Experts Parramatta on 1300 795 575 who can give you the right advice, the first time. For additional information, visit www.bankruptcyexpertsparramatta.com.au.