What is a Debt Agreement?
A debt agreement is where you negotiate the terms of your loans with creditors to secure an arrangement that you can afford. Sometimes it is possible to come to a debt agreement informally with your creditors, but often a debt agreement refers to a legally binding alternative to bankruptcy, legislated under Part IX and Part X of the Bankruptcy Act, 1966.
Debt agreements are a debt relief solution available to those who are struggling to keep up with minimum repayments on their loans, and who are suffering from serious debt problems. If you decide to try for a debt agreement, then you will draw up proposals to offer to your creditors, explaining your suggested terms based on what you can afford to repay.
The creditors do not have to accept your proposal, so it is important that you remain realistic about your offer. If more than half of your creditors accept the debt agreement, then it will become legally binding, and you will begin to pay back the debt depending on the agreement made. All parties must then stick to the agreement. This often means paying back less than what you owed. If creditors do not accept the proposal, then you may have to consider bankruptcy.
There are several advantages of debt agreements, but you must always remember that they are serious debt solutions that should only be used if you absolutely have to. Having said that, a debt agreement can:
- Freeze your interest rates on unsecured debts.
- Greatly reduce the amount that you have to pay back overall.
- Make repayments affordable for you.
- Prevent legal action on your unsecured debts.
- Be released from your debts once the repayment obligations have been met.
- Avoid bankruptcy.
The solution is available as an alternate to bankruptcy, but is still an ‘act of bankruptcy,’ and has marked consequence. A debt agreement will affect your credit rating for at least 5 years, and your details will be listed on the National Personal Insolvency Index.
There are also certain eligibility factors that apply to debt agreements. You must be insolvent, and must not have filed a debt agreement or bankruptcy in the last 10 years. You must also meet the requirements for debt, assets, and income.
A free debt consultation will help you to understand your debt situation, and whether a debt agreement is an appropriate path to take in order to get out of debt.