When debt becomes too much to handle, many people believe the only solution to be bankruptcy. This might have been true many years ago, but under the Bankruptcy Act 1966 there are two clauses that permit legally binding debt agreements. Part IX and Part X debt agreements are a debt solution that can be used as an alternative to bankruptcy.
Debt agreements were introduced as an alternative to bankruptcy, and a method of dealing with insolvency. In simple terms, they allow you to attempt to make a formal debt agreement with your creditors in which you negotiate terms of repayment. If creditors agree (more than half of them to be precise), then you enter a legally binding contract under the newly agreed terms.
Creditors are not obliged to accept your offer. Many do because it is a more beneficial for them than your bankruptcy. For this reason it is advisable that you keep in mind that your offer should please creditors, though obviously you can only offer to pay back what you can afford. Once they have accepted the legally binding debt agreement begins.
You must then fulfill the obligations of the debt agreement, making repayments to the schedule. Failure to do so might end in the contract being terminated. Once you have met your obligations, which often only involves paying back some of what you originally owed, then you are freed from your debt.
There are certain eligibility factors when it comes to debt agreements. You must be insolvent, have not filed for a debt agreement or bankruptcy within the last 10 years, and must meet the requirements for amount of debt and value of assets. You can see the AFSA website for more details.
Debt agreements are a very serious debt solution that are used in cases of insolvency as an alternative to bankruptcy. As you can imagine then, they are only employed when you are experiencing extreme debt problems, cannot keep up with repayments, and cannot envision a solution using financial management or other debt solutions like consolidation. Basically, if you are considering bankruptcy then a Part IX or Part X debt agreement are your other option.
Debt agreements are less consequential than bankruptcy, but there are still some effects that you need to be made aware of.
By now you should understand that debt agreements are very serious, and are used in cases of insolvency. If, however, the situation calls for it, then debt agreements have several benefits:
If you need more information on debt agreements, or you need an insolvency solution, Debt Negotiators can help you to settle the right terms with your creditors, and apply the appropriate legislation to try to avoid bankruptcy. Contact us today to arrange a free consultation.