It is important to understand that a formal debt agreement is a serious step with real consequences. It is a severe debt solution that affects your credit rating and even your career, and should be used only when other means fail.
Talk to a financial expert before you enter a debt agreement. They can explore other avenues, such as negotiating with creditors, offering financial advice and budgeting, and finding government assisted debt solutions. Only when you have exhausted all other options, should you consider taking out a debt agreement.
Informal debt agreements involve negotiating with creditors in order to secure lower repayments or interest rates, or to ask for more time to pay back your debt. You can do this yourself, or ask professional debt negotiators to talk on your behalf. This is often worth a try before considering a formal agreement.
A formal debt agreement is a legally binding contract which is covered by Part IX of the Bankruptcy Act 1966. Applying for a debt agreement is an act of bankruptcy, but is not severe as being bankrupt.
Debt agreements are available to low-income earners, who fit the criteria laid out by the Australian Financial Security Authority (AFSA), as an alternative to bankruptcy. You can find further details on the AFSA website.
As soon as the debt agreement is filed, interest, charges, and enforcement actions are ceased. Creditors accept an offer for an amount that you can afford to pay over a set time, either as a lump sum and/or as scheduled payments. Once the agreed amount is paid, the rest of the debt is wiped clear.
To enter a debt agreement, you will have to send signed paperwork and proposals to AFSA. They will analyse your case, and if they approve they will send your proposal to each creditor, who then vote on whether to accept the agreement.
If the majority accept (over 50.1%) then the agreement will legally begin, and all creditors will be bound to it, and will receive the percentage that was outlined. If your agreement is declined, you may have the chance to apply again, but success is not guaranteed.
Debt agreements only cover provable unsecured debt, such as credit cards and store cards, medical bills, and some personal loans. Secured debts are not covered. In this case, the lender can take the property for payment. Joint debt should be declared on the debt agreement, but the partner will still be liable for the whole amount. The same applies for debt that is guaranteed by someone else. In this case, the creditor will likely take the debt agreement payments and then pursue the other party.
Finally, certain debts will not be covered, and you will still be liable to pay them in full after the agreement is over. This includes debt from fraud, child support, fines and penalties, and student loans.
As mentioned, the consequences of debt agreements are severe. Your name and details will be kept on the National Personal Insolvency register for 5 years, or 2 years after the agreements ends. Your debt agreement will be listed on your credit report for 5 years, affecting your chances of future loans or credit. There may also be consequences for your career or business life. In the worst case scenario, creditors can use a declined debt agreement to bring you to bankruptcy.
If you are considering a formal debt agreement, it is time to contact a debt specialist. They can look for other options that may be less damaging for your financial future. If it comes to it, they can help you to avoid bankruptcy by compiling a debt agreement with a high success rate.
Contact Debt Negotiators today to discuss your finances and gain advice about the future.