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Debt Agreements – What is a debt agreement and how can it work for you
If you are looking for a debt solution but don’t want to go bankrupt, then a debt agreement may be the answer. Many people who have debt feel stressed and worry about how they will manage. When the debt gets too much to handle, then it is natural to start looking for solutions that do not involve bankruptcy or debt consolidation. A debt solution that does not force you into bankruptcy is a debt agreement. Thousands of Australians choose debt agreements each year as a way to manage their debt levels and reduce repayments.
A debt agreement is one where you and your unsecured creditors agree that you will pay back some or all of your debt over time, according to what you can afford. The beauty of this is that debt agreements are set at a manageable level and the debt doesn’t keep growing through interest.
Debt agreements requires some negotiation with your creditors so that your repayments are manageable. This is where we can help you. We negotiate with your unsecured creditors on your behalf. The purpose of the negotiation is to get you a better deal; one that you can afford. Most debt agreements last between 3 and 5 years and are protected by law so that you cannot be asked to pay back more than the agreement amount.
A debt agreement can be an attractive option for people who want to pay off their debts at an affordable rate, protect secured assets like home and car and not have their credit rating affected for more than a few years.
Jane's debt agreement example
Jane has a regular job, rents her apartment and lives alone. She has a car loan for which she makes regular repayments and has a couple of credit cards that she uses to make personal purchases. Over time Jane finds that the amount owing on the credit cards grows, she sometimes only manages the monthly minimum repayment amounts and the interest is costing her more and more. Jane continues to make the loan repayments on her car but she is finding it harder to cope and there is mounting pressure when her hours of work are cut. Jane struggles on for a few more months but begins to find it difficult to pay her rent and everyday bills. Seeking a solution to her situation, Jane enters into a debt agreement with her creditors. The interest accruing on the credit card debt is frozen, the monthly repayment amounts are set at a level that she can afford and she agrees to pay back that amount over a period of years until the debt is paid.
What will a Debt Agreement mean for you?
- The total amount you pay back in the agreement can be less than the total amount you owe now. This means you reduce your debt to a level that you can afford.
- Your creditors may be persuaded to take less than what is owed because they would rather be paid something than nothing (if you were to go bankrupt for example). This means that we negotiate with your creditors, on your behalf.
- Interest costs are frozen. This means that interest will not accrue while you are paying back the debt.
- Repayment amounts under the agreement are usually in keeping with your income level. This means that you can afford the repayments.
- Repayments under the agreement can be weekly, fortnightly or monthly with one easy payment per period. We then distribute the amounts to each creditor. This means you can make one easy set and forget transfer and your life will be much simpler.
- You don’t have to deal individually with a whole list of your creditors. If you have any questions about your debt you speak to only one organisation – us.
- Debt agreements apply to unsecured creditors but secured creditors may voluntarily form part of the agreement.
- Your credit rating will be less affected by a debt agreement than by bankruptcy. This means that once you have repaid all your debts under the agreement, you can move on with your life.
Do you qualify for a Debt Agreement?
To be eligible for a debt agreement you must meet certain criteria:
- You must be insolvent. This means right now you are unable to pay your debts when they fall due;
- You must earn less than a certain amount each year (referred to as an indexed amount and currently around $82,000 per year);
- You must be able to pay back a certain amount of your debt, so you’ll need some form of income;
- You must not have been bankrupt in the last 10 years; and
- Your unsecured debts must be less than a certain amount (referred to as an indexed amount and currently around $109,000).
What’s the Process to Establish Debt Agreements?
We help you draw up your debt agreement. It is vital that the debt agreement payments are realistic and take into account known issues such as fluctuations in income (overtime or reduced hours of work) and your financial circumstances.
We ask you for details of your debts, your income and your expenses. Then we propose a debt agreement to your creditors based on that information and based on what you can afford. We lodge the proposal with the relevant government department and your creditors get a chance to vote on the proposal.
Once your creditors have voted positively, the debt agreements comes into being. After that, you make regular payments to us and we distribute agreed amounts to your creditors for the life of the agreement.
There are Consequences you Should Know About.
If you are considering a debt agreement there are consequences of which you should be aware. We can provide you with detailed information as part of our service to you. A summary of the impacts are:
- A debt agreement is a binding agreement under Part IX of the Bankruptcy Act 1966 ;
- Proposing a debt agreement is an act of bankruptcy;
- Your credit rating will be affected for the duration of the agreement. It is worth noting though that your credit rating may currently be affected if you are having trouble paying your current bills;
- Your unsecured creditors cannot take any action against you to collect their debts;
- You will be released from your unsecured debts when you complete the agreement;
- Your secured creditors may sell the assets that you have offered as security for credit if you are in default;
- You must disclose that you have a debt agreement, when applying for credit over $5,500; and
- The debt agreement will be on public record and your name and other details will be recorded on the National Personal Insolvency Index for the life of the agreement.
For more information on debt agreements and how they might help in your particular situation, contact us on the number at the top of this page or fill in the form for a Free Consultation.