A large number of Australians suffer through financial issues during their lifetime, and this is largely regarded as a standard fluctuation in our finances. But what if you’re not able to resolve these difficulties yourself, but at the same time, you don’t want to file for bankruptcy?
Debt consolidation loans are a customary option that relieves folks 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 possibility available to people in financial hardship, 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 lenders which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to pay off a sum of money that you can afford, over an arranged 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 consequences which may have a bearing on your ability to secure credit down the track. Subsequently, it’s strongly recommended that individuals seek independent financial guidance before making this decision to make sure this is the best alternative for their financial circumstances and they clearly understand the repercussions of such agreements.
Prior to entering a debt agreement
There are certain things one should consider prior to 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 work out your debts outside of a debt agreement. Have you spoken with your creditors and asked them for extra time to repay 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 assist low income earners who are unable to pay unsecured debts. Not all types of debt are covered in debt agreements, including the following:
- Secured debt – such as mortgages where the property can be sold to recoup money
- Joint debt – if you have a joint debt with a partner, lenders can request that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – for instance debts incurred by fraud, student HECS or HELP debts, court fines, and child support
Are you entitled 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 determine that a debt agreement is the best solution 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 financial institutions accept the terms of your agreement, then your debt agreement will start, for instance, paying 80% of your debts to creditors over a 3-year period.
Downsides of debt agreements
As stated earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are significant repercussions one must take into consideration.
- 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 recorded on your credit report for up to five years, or longer in some circumstances
- You are legally required to inform a new creditor of your debt agreement when receiving a loan over $5,703.
- If you own a firm trading under another name, you are legally required 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 affect your employment.
Decide on your debt agreement administrator mindfully.
Debt agreement administrators play an integral role in the success of your debt agreement, so always go with an administrator that is registered with AFSA’s list of registered debt agreement administrators. Fees also vary widely between administrators, so always read the payment terms before making any decisions.
If you’re still unsure if a debt agreement is the right solution for you, get in contact with Bankruptcy Experts Hervey Bay on 1300 795 575 who can give you the right advice, the first time. For more information, visit www.bankruptcyexpertsherveybay.com.au.