A lot of Australians go through financial headaches during their lifetime, and this is mainly considered a typical fluctuation in our finances. But what if you’re not able to address these challenges yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a standard solution that relieves folks of financial anxiety by consolidating all their current debts into one easy to manage loan that’s payable every month. 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 fundamentally a legal contract between you and your lenders which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your lenders allow you to pay off a sum of money that you can afford, over an arranged period of time, 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 repercussions which may impair your capacity to acquire credit in the future. For this reason, it’s strongly recommended that individuals seek independent financial counselling before making this decision to ensure this is the best alternative for their financial situation and they clearly recognise the consequences of such agreements.
Before entering a debt agreement
There are a number of things one should take into account prior to entering into a debt agreement. Reaching out to your creditors about your financial situation is always the first step you should take to try to resolve your debts outside of a debt agreement. Have you spoken with your financial institutions and asked them for extra 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 included 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 mortgages where the property can be sold to recover money
- Joint debt – if you have a joint debt with an associate, financial institutions can demand that your partner repays the full amount if you’re unable to
- Foreign debt
- Other debts – including debts incurred by fraud, court fines, student HECS or HELP debts, and child support
Are you entitled to enter a debt agreement?
To determine 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 alternative 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 financial institutions. If your lenders accept the terms of your agreement, then your debt agreement will start, for example, paying 85% of your debts to lenders over a 3-year time period.
Downsides of debt agreements
As stated earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe repercussions one must contemplate.
- If your creditors 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 shown on your credit report for up to five years, or longer in some circumstances
- You are legally required to inform a new lender of your debt agreement when obtaining a loan over $5,703.
- If you own a firm trading under another name, you are legally obliged to reveal your debt agreement to anybody 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.
Decide on your debt agreement administrator diligently.
Debt agreement administrators play a vital 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. Costs also fluctuate widely between administrators, so always inspect the payment terms before making any decisions.
If you’re still unclear if a debt agreement is the right choice for you, speak with Bankruptcy Experts Dandenong on 1300 795 575 who can give you the right advice, the first time. For more information, visit www.bankruptcyexpertsdandenong.com.au.