Most Australians deal with financial troubles during their lifetime, and this is generally regarded as a typical fluctuation in our finances. But what if you’re unable to resolve these issues yourself, but at the same time, you don’t want to declare bankruptcy?
Debt consolidation loans are a common solution that relieves folks of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable monthly. Conversely, debt agreements are another solution 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 basically a legal contract between you and your financial institutions which comprises Part IX of the Bankruptcy Act 1966. Under this agreement, your financial institutions allow you to pay back 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 consequences which may impact your capacity to obtain credit down the track. Consequently, it’s strongly recommended that folks seek independent financial counselling before making this decision to make sure this is the best choice for their financial circumstances and they clearly understand the consequences of such agreements.
Prior to entering a debt agreement
There are certain things one should contemplate before entering into a debt agreement. Speaking to your lenders 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 to your financial institutions and asked them for more time to settle your debt? Have you already tried to negotiate a repayment plan or a smaller payment to repay your debt?
What types of debts are covered in debt agreements?
Debt agreements are designed to assist low income earners who are not able to pay unsecured debts. Not all types of debt are covered in debt agreements, such as the following:
- Secured debt – for instance home loans where the property can be sold to recoup money
- Joint debt – if you have a joint debt with a partner, creditors can demand that your partner repays the full amount if you’re unable to
- Overseas debt
- Other debts – for instance debts incurred by student HECS or HELP debts, fraud, child support, 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 elect that a debt agreement is the best approach 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 commence, for instance, paying 75% of your debts to creditors over a 3-year time frame.
Downsides of debt agreements
As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are significant implications one must contemplate.
- 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 listed on your credit report for up to five years, or longer in some circumstances
- You are legally obliged to notify a new financial institution 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 disclose your debt agreement to anyone who deals with your business.
- 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 mindfully.
Debt agreement administrators play a vital role in the results of your debt agreement, so always decide on an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also fluctuate widely between administrators, so always examine the payment terms before making any decisions.
If you’re still not sure if a debt agreement is the right alternative for you, get in contact with Bankruptcy Experts Rockhampton on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertsrockhampton.com.au.