Can you turn a constant source of stress into something manageable?
For many Australians, the apparent answer is, ‘yes!’. As the Australian Financial Security Authority reports, Debt Agreements are becoming a viable option for clearing personal insolvency and debt.
They’re seen as a formal agreement that is an alternative to declaring bankruptcy, yet with the flexibility of a debt management plan.
Like any of the debt clearing options, however, Debt Agreements, also known as Part IX agreements, come with their own set of long-term impacts that you’ll need to keep in mind when weighing your current personal financial situation as well as your own long-term goals.
To figure out if a Debt Agreement is your best option, ask yourself what your future financial priorities are.
In this article, we’ll lay down the basics of a Debt Agreement so you can answer that question with a fuller picture.
What Is a Debt Agreement?
So what is a Debt Agreement? Simply put, it’s a useful way to consolidate debt and follow a pre-structured payment plan that has formally been agreed upon by you and your creditors.
The amount you pay back is based on something you can actually afford, over a set period of time, which is the term of the agreement.
Why Debt Agreements over bankruptcies? The former offers flexibility for consumers:
• You negotiate with your creditors to pay only a percentage of your combined debt, an amount that can be afforded by you over a period of time.
• To help you manage and liaise with your creditors, you make repayments to your Debt Agreement administrator rather than individual payments to creditors.
• After you complete the payments and the agreement ends, your creditors can’t recover the balance of the debts covered by your Debt Agreement.
• Your creditors cannot write to you or call you once the agreement has been formally entered.
When to Consider a Debt Agreement
A Debt Agreement is for people struggling with debt who also cannot get a loan but definitely want to seek a final solution to repay their debts.
Pro-Tip: As a debtor, you can seek temporary relief from creditors’ enforcement actions for 21 days. This is called a declaration of intention to present a debtor’s petition and you can use this time to seek free financial advice, consider your options and move forward in the best way.
If any of the following holds true for your personal financial situation, you’ll want to consider a Debt Agreement as just one of the options available for you:
• You have consumer debts in the form of credit cards, personal loans, financial agreements
• The interest on your consumer debt is piling up, making repayment virtually useless because you’re constantly paying back so much interest and not moving forward with the principal reduction
• You’re struggling to keep up with your individual repayments
• Temporary financial hardship options (such as a Hardship Agreement) doesn’t apply or won’t help
Using a Debt Agreement to Get Beyond Debt
• Your debts, once you’ve entered into an Agreement, won’t accrue any interest
• If you’re a small business owner, you can remain a company director
• You are only responsible for making payments until the agreement period ends
• Your debt administrator or manager is responsible for conducting all credit checks, valuations and communications with your creditors — which means the only thing on your shoulders is the one payment each month
These are not so much ‘cons’ as they are notable points that may dissuade you from choosing this option. To be sure about what is right for you, seek financial advice from a trusted debt negotiator.
• Debt Agreements cannot release you from all debts — there are some you’ll still have to pay, including court fines, student loans e.g. HECS/HELP/SFSS, victims of crime, debts incurred after the date of the proposal. (Source: Australian Financial Security Authority)
• Creditors are allowed to pursue you for the following debts: debts incurred by fraud, missed child support payments, fines, penalties and court-ordered payments, and overseas debts. (Source: Australian Financial Security Authority)
• You might end up paying more than your agreed upon amount because of additional DAA fees
Once your Debt Agreement ends, you’ll be able to begin to build your credit rating once more.
Your Debt Agreement will appear in two places: your credit report, for a minimum of five years from the start of your agreement, and the National Personal Insolvency Index.
However, by entering into a Debt Agreement, you can fulfil the terms of your agreement, pay less than you would have by consolidating your debt, and begin to go beyond your debt.
Get in touch with us today to get started.