What Are Debt Agreements and When Are They Appropriate?
Bankruptcy carries with it significant consequences and as a result should only be considered as a last option. One of the alternatives you should consider is a Part IX debt agreement.
What is a debt agreement?
A debt agreement is a negotiated arrangement between you and creditors governed by government legislation. A debt agreement is a low-cost alternative to bankruptcy for individuals on a lower income with few or no assets. Debt agreements are available to debtors with under $94,530.80 of personal debt and net income below $70,898.10.
Debt agreements are best negotiated by experienced professionals such as:
- Debt Counsellors
- Debt Agreement Administrators
- Private Trustees
The debt agreement proposal is then lodged with the Insolvency and Trustee Service Australia (ITSA). ITSA then contact your creditors to see if they will agree to your proposal. In order to have your debt agreement proposal accepted, creditors totalling at least three-quarters of the total debt level and the majority of creditors by number must agree to the proposal.
What are the benefits of Debt Agreements?
Each year debt agreements are becoming increasingly more popular across Australia. Debt agreements are proving to be an excellent alternative to bankruptcy.
Debt agreements have many benefits to bankruptcy. Some of the benefits of debt agreements are:
- The interest accruing on your debt is frozen
- Creditors no longer pursue you
- Your debt agreement administrator handles communication with your creditors
- Your credit report is less affected than by bankruptcy
- You pay a single regular repayment rather than juggling multiple repayments
Who is it suitable for?
It is not uncommon for people to file for bankruptcy as the result of debts below $8,000. In this situation a debt agreement should have been taken into consideration. As debt agreements are available to debtors with under $84,484.40 of personal debt and net income below $63,363.30, if you fall into this category you should take the debt agreement option into consideration.
Potential problems with debt agreements
Creditors are not obliged to accept Debt Agreements so the process requires negotiation with your creditors. As a consequence it is recommended that you prepare your debt agreement through an experienced debt agreement administrator. However debt agreement administrators generally charge small upfront fees which can be an unnecessary expenditure if your debt agreement is not accepted.
Like all forms of debt management, debt agreements require a commitment from you the debtor. If you are unable to manage your debt agreement your debt problems could potentially worsen. In order to make a debt agreement work you have to be diligent about meeting your payments.
There are many advantages to a debt agreement and there are also other aspects which you need to consider. The debt agreement proposal and the debt agreement are registered on the National Personal Insolvency Index (NPII). Veda Advantage and Dunn and Bradstreet, credit-reporting agencies, use the information on the NPII to advise creditors that you have submitted a debt agreement proposal and/or are party to a debt agreement. A debt agreement will be listed on your credit record for a seven year period. During this time it may be difficult to obtain credit.
Debt agreements provide an excellent alternative to bankruptcy especially for low income earners in a state of financial difficulty. It is important that before you enter into bankruptcy you explore every alternative available to you.
If you would like to find out if a debt agreement is your best option then fill in the following form or call Debt Relief on 1300 658 662 and our staff will assist you.