Most Australians go through financial troubles during their lifetime, and this is often considered a natural fluctuation in our finances. But what if you’re not able to address these problems yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a common option that relieves people of financial stress by consolidating all their current debts into one easy to manage loan that’s payable each month. Alternatively, debt agreements are another possibility 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 ultimately a legal contract between you and your creditors which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your financial institutions allow you to repay 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 consequences which may affect your ability to acquire credit down the road. For this reason, it’s strongly encouraged that folks seek independent financial guidance before making this decision to make sure this is the best solution for their financial situation and they clearly understand the consequences of such agreements.
Prior to entering a debt agreement
There are a number of things one should think about 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 settle your debts outside of a debt agreement. Have you spoken with your lenders 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 not able to pay unsecured debts. Not all types of debt are covered in debt agreements, including the following:
- Secured debt – for example home loans where the property can be sold to recoup 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
- 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 figure out if you are qualified, simply 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 determine that a debt agreement is the best approach 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 creditors. If your lenders agree to the terms of your agreement, then your debt agreement will start, for example, paying 90% 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 significant implications 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 detailed on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to notify a new creditor of your debt agreement when acquiring a loan over $5,703.
- If you own an enterprise trading under another name, you are legally required to disclose your debt agreement to anyone who deals with your firm.
- 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 mindfully.
Debt agreement administrators play an important role in the success of your debt agreement, so always decide on an administrator that is registered with AFSA’s list of registered debt agreement administrators. Fees also vary widely between administrators, so always look at the payment terms prior to making any decisions.
If you’re still uncertain if a debt agreement is the right option for you, phone Bankruptcy Experts Wyong on 1300 795 575 who can give you the right advice, the first time. To learn more, visit www.bankruptcyexpertswyong.com.au.