September 21, 2018 Comments Closed

What You Should Understand About Debt Agreements

Posted by:admin onSeptember 21, 2018

A large number of Australians deal with financial difficulties during their lifetime, and this is mainly regarded as 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 customary solution that relieves people of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable monthly. Likewise, 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 ultimately 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 repay a sum of money that you can manage, over an arranged time frame, 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 impair your capacity to secure credit in the future. Subsequently, it’s strongly recommended that folks seek independent financial advice before making this decision to ensure this is the best alternative for their financial situation and they clearly grasp the repercussions of such agreements.

 

Before entering a debt agreement

There are several things one should think about prior to entering into a debt agreement. Speaking to your creditors about your financial predicament is always the first step you should take to try to settle your debts outside of a debt agreement. Have you talked to your lenders and asked them for more time to repay your debt? Have you already tried to arrange a repayment plan or a smaller payment to settle your debt?

 

What types of debts are included in debt agreements?

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

  •  Secured debt – for example home loans 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
  •  Foreign debt
  •  Other debts – for instance debts incurred by child support, student HECS debts, court fines, and fraud

 

Are you entitled to enter a debt agreement?

To ascertain if you are eligible, 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 option 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 creditors. If your lenders accept the terms of your agreement, then your debt agreement will start, for example, paying 80% of your debts to lenders over a 3-year period.

 

Downsides of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe repercussions one must consider.

  •  If your lenders 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 notify a new financial institution of your debt agreement when acquiring a loan over $5,703.
  •  If you own a company trading under another name, you are legally required to reveal 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.

 

Choose your debt agreement administrator carefully.

Debt agreement administrators play a vital role in the success of your debt agreement, so always opt for an administrator that is registered with AFSA’s list of registered debt agreement administrators. Costs also vary widely between administrators, so always review the payment terms prior to making any decisions.

 

If you’re still unsure if a debt agreement is the right choice for you, talk to Bankruptcy Experts Mount Isa on 1300 795 575 who can give you the right advice, the first time. For additional information, visit www.bankruptcyexpertsmountisa.com.au.

 

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