A lot of Australians wrestle with financial problems during their lifetime, and this is generally considered a normal fluctuation in our finances. But what if you’re not able to resolve these issues yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a popular solution that relieves folks of financial strain by consolidating all their current debts into one easy to manage loan that’s payable each month. Moreover, debt agreements are another approach available to people in financial distress, 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 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 afford, over an agreed 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 repercussions which may have a bearing on your ability to acquire credit down the road. As a result, 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 repercussions of such agreements.
Prior to entering a debt agreement
There are several things one should consider prior to entering into a debt agreement. Speaking to your financial institutions 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 spoken to your financial institutions and asked them for more time to settle your debt? Have you already attempted to arrange 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 types of debt are covered in debt agreements, such as the following:
- Secured debt – such as home mortgages where the property can be sold to recoup money
- Joint debt – if you have a joint debt with an associate, financial institutions can request that your partner repays the full amount if you’re unable to
- Offshore debt
- Other debts – including debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you eligible to enter a debt agreement?
To find out 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 help you with your debt agreement proposals, based upon what you can afford, and deliver this proposal to each of your lenders. If your creditors agree to the terms of your agreement, then your debt agreement will commence, for example, paying 75% of your debts to financial institutions over a 3-year time frame.
Disadvantages of debt agreements
As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious implications one must consider.
- If your financial institutions 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 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 a company trading under another name, you are legally obliged to reveal your debt agreement to any person who deals with your company.
- If your job belongs to a regulated profession or a position of trust, it may have a bearing on your employment.
Select 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. Fees also vary widely between administrators, so always examine the payment terms prior to making any decisions.
If you’re still uncertain if a debt agreement is the right solution for you, speak with Bankruptcy Experts Fremantle on 1300 795 575 who can give you the right advice, the first time. To learn more, visit www.bankruptcyexpertsfremantle.com.au.