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September 17, 2018 Comments Closed

What You Need to Understand About Debt Agreements

Posted by:Bankruptcy Specialist onSeptember 17, 2018

Most Australians experience financial troubles during their lifetime, and this is mainly regarded as a normal fluctuation in our finances. But what if you’re unable to work out these challenges yourself, but at the same time, you don’t want to declare bankruptcy?

Debt consolidation loans are a customary solution that relieves individuals 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 option available to individuals in financial hardship, and this will be the focus of today’s article.

 

What is a debt agreement?

A debt agreement is effectively a legal contract between you and your lenders which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your financial institutions allow you to pay off a sum of money that you can afford, over an agreed time frame, to settle your debts.

It is crucial to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial implications which may affect your capacity to acquire credit in the future. Consequently, it’s strongly recommended that folks seek independent financial counselling before making this decision to ensure this is the best alternative for their financial situation and they clearly grasp the implications of such agreements.

 

Before entering a debt agreement

There are several things one should think about before entering into a debt agreement. Speaking to your lenders about your financial condition is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you talked with your financial institutions and asked them for extra time to repay your debt? Have you already attempted to discuss a repayment plan or a smaller payment to settle your debt?

 

What types of debts are covered in debt agreements?

Debt agreements are designed to help low income earners who are not able to pay unsecured debts. Not all types of debt are covered in debt agreements, including the following:

  •  Secured debt – such as home mortgages where the property can be sold to recover 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 student HECS or HELP debts, fraud, child support, and court fines

 

Are you eligible to enter a debt agreement?

To check 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 decide that a debt agreement is the best approach for you, a debt agreement administrator will assist you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your lenders. If your lenders agree to the terms of your agreement, then your debt agreement will start, for example, paying 75% of your debts to financial institutions over a 3-year time frame.

 

Downsides of debt agreements

As stated earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are serious repercussions one must keep in mind.

  •  If your lenders 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 detailed on your credit report for up to five years, or longer in some circumstances
  •  You are legally required to alert a new lender of your debt agreement when securing a loan over $5,703.
  •  If you own a firm trading under another name, you are legally obliged to disclose your debt agreement to anybody who deals with your company.
  •  If your job belongs to a regulated profession or a position of trust, it may affect your employment.

 

Select your debt agreement administrator mindfully.

Debt agreement administrators play a key role in the results of your debt agreement, so always select an administrator that is registered with AFSA’s list of registered debt agreement administrators. Prices also fluctuate widely between administrators, so always look at 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 Bendigo on 1300 795 575 who can give you the right advice, the first time. For more details, visit www.bankruptcyexpertsbendigo.com.au.

 

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