What Is Involved In A Debt Agreement?
What you need to know about debt agreements
A debt agreement is a form of bankruptcy covered under part 9 of the bankruptcy act of 1966. A debt agreement is an agreement between a debtor and a creditor that enables the debtor to pay less than what they owe the creditor. It is used when the debtor is unable to reach payments on their debts and assists debtors in clearing unmanageable debt. When you propose a debt agreement it is an act of bankruptcy.
A debt agreement frees the debtor from most or all of their debts once the debt agreement is complete and is seen as an alternative to bankruptcy, even though it is still technically an act of bankruptcy. Once you have paid the amount owed on the debt agreement, your creditors cannot claim any more of the money you owe.
A debt agreement can be a way to stop the hassle from your creditors, as once the terms of the debt agreement have been met they are unable to seek any further reimbursement. This means that a debt agreement can effectively stop the calls from debt collectors and stop the hassle and letters from your creditors.
Debt agreements provide extra protection from your creditors not offered by some informal arrangements and have certain eligibility requirements that you must meet which are mentioned below. As this is a form of bankruptcy, if you submit a debt agreement and your creditors do not agree to it, they are then able to force you to declare bankruptcy. You need to consider this when entering your debt agreement, as you will want to make it as fair and acceptable to your creditors as possible.
Before you submit a debt agreement make sure you consider all other options available. This includes talking to your creditors for more time or renegotiate your current payment plan. A financial counselling service such as Get Out Of Debt Today can help you negotiate with your creditors and can explain to you your other options. Debt agreement also don’t release you from all debts, namely your secured debts such as a home loan.
If you require help planning or going over debt agreements and what they will mean for your finances you can call Get Out Of Debt Today on (02) 9011 7919 for a free consultation and more information on clearing your debts. We can help plan and submit a fair debt agreement to your creditors for their consideration and ensure that a reasonable deal is struck on your behalf.
How Do You Enter A Debt Agreement?
What steps do you need to take in order to make and submit a debt agreement?
You will need to pass some criteria to make a debt agreement. You cannot have been bankrupt in the last ten years and must earn less than $1572.64 a week after tax. You are also not able to make a debt agreement if your assets equate to more than $109,036.20 and your total unsecured debts cannot be over $109,036.20 either. For these reasons, debt agreements are usually for lower income earners and used as an alternative to bankruptcy.
In order to make a debt agreement, you first need to seek out the assistance of a debt agreement administrator who will help you with the filling out and lodging of all forms required. When making up and proposing a debt agreement it is important to be realistic about what you can afford as well as how much your creditors will accept. Your debt agreement administrator will help with this looking at your financial situation and seeing what you are able to pay.
There are three main forms your debt counsellor can help you fill out and plan. Each one needs to be considered carefully as they have a large impact on whether your debt agreement will be accepted or not. This is why its important to talk to a debt counsellor and get their input on each form, making sure each is filled out properly which then makes it more likely that they will be accepted. The three types of forms are;
Debt Agreement Proposal – Outlining your offer of reimbursement to your creditors including how much each can expect to receive.
Explanatory Statement – A recount of you finances, taking into account income, personal situation, assets, total debts and expenses and the reasons you are unable to reach your debt repayments.
Statement of Affairs – Gives a detailed description of your financial trouble and current circumstances. A way of detailing the reasons you are in debt, why you are struggling to pay off the debt, what income you are earning and where it is going and how much you current own in terms of assets.
Once you have finished your proposal you must then submit it to the official receiver along with your lodging fees (fees can be seen here). He will then check the debt agreement form, making sure everything has been filled out properly. Your debt administrator will be required to submit a certificate to state that you have received all information you need about debt agreements, bankruptcy and other option, that you will be able to reach the repayments promised and that all your financials have been fully disclosed. Once the official review has finished his review and lodged your submission to the National Personal Insolvency Index, it is then sent to your creditor for them to vote on whether they will accept your proposal.
You are also able to communicate and negotiate with your creditors over the amount before you submit it. Your debt agreement is then sent to your creditors who are able to vote to accept or reject the offer. If they don’t accept it, they may force you to enter bankruptcy which you can find out more about here.
What Happens If My Debt Agreement Is Accepted?
What needs to be done after your debt agreement has been accepted?
Once the debt agreement has been accepted, all parties are bound by the agreement. Creditors are able to seize any assets that you have offered as security if the debtor is in default. Creditors are not able to take any action against you in order to receive their payments, however you must keep up with the agreed payments otherwise the agreement can be terminated and you could be forced into bankruptcy. All creditors take the same portion of whatever you are paying, so if you agree to pay 85% of your debts then each creditor will receive 85% of what they are owed. You make the payments to your debt agreement administrator who then forwards the payments on to your creditors. It’s important to note that administrators will charge you a fee for their services.
A number of debts are not covered by a debt agreement including secured debts or debt that is tied to an asset such as a home or car loan. If you are unable to pay this type of debt, then the creditor can seize the asset and sell it to pay off the debt. If the money recouped from the sale is less than the total amount of debt owed, then the amount left over can be included in your debt agreement.
Also any joint debts, where either you or the person you took the loan out with cannot pay the debt. You can include your part of the debt in your debt agreement, however, the creditor can still seek to get the amount owed by your partner, hence you are not properly protected by the debt agreement. Overseas debt can be included in the debt agreement, but whether or not they are able to seek the rest of the amount is up to the laws in their country and not Australian law so this need to be considered.
Once your debt agreement is accepted it is important that you already have a budget in play and have already started saving to pay off the debt. Your Debt administrator can help you plan your budget and ensure you stick to it by making it flexible and easy to follow. If you do not follow through on your payments, you can seriously jeopardize the debt agreement and end up being forced into bankruptcy by your creditors.
While a debt agreement is being submitted, your creditors are unable to contact you about reimbursement and debt collection. You can hence, use this time to save your money to pay off your debts when they are due. Paying a larger sum at the start of the debt agreement is a good negotiating tool and proves you are serious about paying off your debt to your creditors. Make sure that you are prepared to save and budget before entering your debt agreement as breaking the debt agreement can have very serious consequences. Your debt counsellor or administrator will help you stick to your budget and pay off the debt as they have submitted a certificate claiming that they believed you would be able to reach the terms of the agreement.
What Are The Consequences Of A Debt Agreement
What are the positives and negatives of entering into a debt agreement?
There are a number of consequences of entering a debt agreement that you should carefully consider before entering into a debt agreement. Many Australians are entering into a debt agreement without knowing the facts
Most of your unsecured lenders cannot take any further action against you and are paid an agreed portion of your debts.
Once you have completed all payments you are released from your unsecured debts.
Your name and details will be on the National Personal Insolvency Index (NPII) for a limited time, depending on when your debt agreement began and whether it was terminated or not.
Your ability to get access to credit and borrow in the future will be affected.
The agreement doesn't release you from joint debts, secured debts or overseas debts and creditors for these types of debts are still able to seek payment for these debts.
A secured creditor, such as a home loan lender, is able to seize and sell the assets that you have offered as security. This includes expensive items such as your home and car.
If you own your own business, you must tell everyone you deal with including suppliers that you have had a debt agreement.
You must tell all parties that you have had a debt agreement if you are incurring further debt or obtaining good or services that cost over a certain amount.
You could also be prevented from entering into certain types of professional practice. You may not be granted licenses to practice which are needed in certain regulated professions.
There is the possibility of bankruptcy that needs to be considered. If your debt agreement is not accepted, your creditors can apply to the courts to force you into bankruptcy.
As you can clearly see there are both positive and negative consequences from submitting a debt agreement. One important consideration would be the amount of negative impacts this sort of action can have and consider whether another, less extreme option would be more viable. In many ways debt agreements are more flexible than bankruptcy, however they still have very serious implications on your credit rating.
You are able to pay back the debt in a much more flexible way than if you entered bankruptcy, but you should still consider debt agreements as a last resort. For example, if your creditors are sending debt collectors to collect debt regularly whilst refusing to negotiate with you then a debt agreement can be a saving grace. If you can’t put up with the cloud of debt any longer make sure to talk to a debt counsellor about debt agreements, but also other way of getting out of debt.
What Are The Alternatives To Debt Agreements And Bankruptcy?
There are other options available to you other than debt agreements and bankruptcy
There are alternatives to debt agreements and bankruptcy that can leave you with less fees, no defaults and no black marks against your credit history. These include informal agreements, where a debt counsellor negotiates with your creditors on your behalf to get you a lower repayment rate. This is similar to a debt agreement, but doesn’t affect your ability to borrow in the future, your job or your business.
Another alternative is debt consolidation, which is where you combine all your debts into one easier repayment. This is usually done thought a mortgage refinance where you increase the size of your home loan to pay off all other debts, leaving you with a bigger home loan but with a much lower interest rate across the board. You are then able to pay off your debt without having to pay as much interest as you were.
We can help you with your debt agreement submission and proposal if that is the path you choose to go down. We make sure all forms are submitted in an honest and proper way, increasing your chances of acceptance of the agreement by your creditors. However, we only recommend this to clients that have limited options, with many people entering debt agreements without understanding the alternatives.
Get Out Of Debt Today can take you thought the many options available to you that do not affect your credit rating like bankruptcy or debt agreements. Or debt counsellors can help you reduce your debt and negotiate a better deal for you. We are completely transparent with our negotiations and include you in every step to ensure you are not left in the dark. Call us today on (02) 9011 7919 for a free consultation.