Many Australians suffer through financial difficulties during their lifetime, and this is generally regarded as a standard fluctuation in our finances. But what if you’re not able to work through 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 people of financial strain by consolidating all their current debts into one easy to manage loan that’s payable every month. Moreover, 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 basically a legal contract between you and your creditors which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your lenders allow you to pay back a sum of money that you can manage, over an arranged period of time, 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 repercussions which may have an effect on your capacity to secure credit down the road. As a result, it’s strongly recommended that people 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 a number of things one should consider prior to entering into a debt agreement. Talking to your financial institutions about your financial position is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you spoken with your creditors and asked them for more time to settle your debt? Have you already attempted to discuss a repayment plan or a smaller payment to settle your debt?
What kinds of debts are covered in debt agreements?
Debt agreements are designed to assist low income earners who are unable to pay unsecured debts. Not all kinds 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 an associate, lenders can request that your partner repays the full amount if you’re unable to
- Offshore debt
- Other debts – for example debts incurred by court fines, child support, fraud, and student HECS or HELP debts
Are you eligible to enter a debt agreement?
To determine 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 choice for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and deliver this proposal to each of your lenders. If your lenders accept the terms of your agreement, then your debt agreement will begin, for instance, paying 80% of your debts to financial institutions 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 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 noted on your credit report for up to five years, or longer in some situations
- You are legally required to inform a new financial institution of your debt agreement when acquiring 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 company.
- If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.
Select your debt agreement administrator diligently.
Debt agreement administrators play an integral role in the results of your debt agreement, so always go with an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also fluctuate widely between administrators, so always look into the payment terms prior to making any decisions.
If you’re still unclear if a debt agreement is the right approach for you, speak with Bankruptcy Experts Geraldton on 1300 795 575 who can give you the right advice, the first time. To learn more, visit www.bankruptcyexpertsgeraldton.com.au.