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Debt Agreement Advantages and Disadvantages

Debt Agreement - Bankruptcy is not the only way out!

A Debt Agreement can be a realistic alternative to bankruptcy and can help you become debt free relatively quickly.

A Debt Agreement is a legally binding agreement between someone who is in debt and the creditors who are owed the money.

We can help you draw up legal Debt Agreement proposals. The arrangements need to be affordable for the benefit of all those concerned.

More on Debt Agreements here

The advantages of a Debt Agreement are:

  • All interest and charges on your unsecured debts will be frozen.
  • Providing you keep to the terms of your arrangement, your creditors will not be able to pursue any further court action. They will also be prohibited from sending letters to you and telephoning you for the purpose of debt collection.
  • Once the Debt Agreement is successfully completed your debts are effectively settled, providing you with a fresh start.
  • For anyone who does not wish go bankrupt because of their job or the stigma of bankruptcy this can be an excellent option.
  • The Debt Agreement will bind most unsecured creditors.
  • Your contributions are based on your ability to pay.
  • You can keep your secured assets as long as you continue to pay for them
  • Once there is an agreement in place, the amounts owed to creditors does not change
  • A debt agreement can be constructed to suit the debtor. For instance, it may be possible to propose a moratorium, lump sum settlement or any other arrangement that creditors may consider suitable.

The disadvantages of a Debt Agreement are:

  • You will be required to stick to a budget for the term of the agreement.
  • It’s a requirement that all assets and liabilities are declared
  • Debt Agreements are recorded on a public register and are likely to appear on your credit file. This in turn may effect you ability to obtain credit

Debt Agreements: The Good, the Bad and the Ugly

What is a Debt Agreement? A Part IX Debt Agreement, simply put is an offer (made by a debtor) to settle his/her debts as an alternative to bankruptcy. There is so much misinformation about debt agreements that it’s time to set the record straight, once and for all.

  1. A Debt Agreement is not a “one size fits all” solution. Like any option, they have benefits and consequences and it is important to make yourself aware of all the ins and outs
  2. Debt Agreements is not a “form of Bankruptcy” or “partial Bankruptcy”. Whilst you must be insolvent in order to qualify (amongst other things), and it is part of the Bankruptcy Act, it for people that do not want to be bankrupt and want to settle their debts as an alternative to bankruptcy.
  3. If you make a Debt Agreement offer, and your creditors accept it, they are unable to take or continue any legal action against you.
  4. A Debt Agreement is not a consolidation loan but it will consolidate your payments.
  5. Not all your debts are covered by a Debt Agreement, and you will still need to pay some debts such as fines and child support debts.
  6. A Debt Agreement must be affordable, so a realistic and affordable budget is a must.
  7. Not everyone can propose a Debt Agreement; you have to meet certain criteria or “thresholds” relating to assets, income and unsecured debt levels.
  8. A Debt Agreement is only accepted when a majority of unsecured, affected creditors in value vote to accept it.
  9. If you make a Debt Agreement, you are not bankrupt.
  10. When you make a Debt Agreement, affected, unsecured creditors are paid in proportion to their debts.
  11. When you make a Debt Agreement, you must disclose all your debts - no matter how big or small. You are legally required to make truthful declarations.
  12. If your circumstances changes while you’re in the debt agreement you can petition a change to your agreement.
  13. When you make a Debt Agreement, your credit score will be impacted. This will mean that you will be unable to get a loan or any other credit while you are paying off your Debt Agreement.
  14. Once the Debt Agreement is paid, the debts owed to those affected unsecured creditors (i.e. credit cards, personal loans, unpaid bills etc.) will be settled once and for all.
  15. If you make a Debt Agreement, you will have one, regular repayment that will settle most unsecured debts
  16. If you choose to make a Debt Agreement, and your creditors accept it, the terms of the agreement will not change unless you petition your creditors. For example, if you make an agreement and then a year later your position improves substantially, your creditors are unable to insist on increased payments. In other words, all parties are bound by the agreed terms.
  17. Only licenced Debt Agreement Administrators are regulated by the Government. Unlicensed Debt Agreement Administrators and brokers are not regulated by AFSA.
  18. The intention of a Debt Agreement is to settle debts and for this reason, if you were able to obtain finance whilst in a Debt Agreement, it would defeat the purpose.

The intention of this article is to lay to rest just some of the common misconceptions about debt agreements. Whilst we have addressed most of the myths and misconceptions, this is by no means a definitive list. In order to seek further clarification about debt agreements and how they may affect your circumstances, you could contact Debt Fix for a free consultation or contact AFSA Australian Financial Security Authority – the Government agency responsible for overseeing the operation of the Debt Agreement Scheme

More on Debt Agreements here

Commonly asked questions about the difference between a debt agreement and going bankrupt

 Questions

Debt
Agreement

Bankruptcy

Will I automatically lose my car?

No, as long as the payments are maintained

Maybe, if its worth more than $6850.00

Will I lose my furniture?

No

Maybe, you are allowed to keep necessary household furniture.

Will I lose my tools of trade?

No

Maybe, if you have over $3400.00 worth.

If a family member dies and leaves me some money, will I be able to keep it?

Yes

Any interest you have or acquire during bankruptcy as a beneficiary of a deceased estate belongs to the trustee.

Will I be able to travel overseas?

Yes

Maybe, If you wish to travel overseas you must obtain the permission of the court if you are required to make compulsory.

Will I lose my house?

No, as long as the payments are maintained

Maybe, The trustee has to deal with any equity or interest you have in a property, for the benefit of your creditors. This may mean that the property has to be sold.

Do I have to appear in court?

No

Maybe, Your trustee will decide whether there are matters requiring examination before the Official Receiver or the Court. If, for example, investigations into your affairs are needed you may be required to attend an examination or an interview.

 

Debt Fix provide Debt Agreements to those in Sydney experiencing financial difficulties.

Debt Agreement Tips and Articles

Looking for more help to better manage your debt? Visit the Debt Fix blog where we regularly add articles and tips for helping you free yourself from debt.

National Number 1300 332 834 | Sydney: 02 8211 1155 | Melbourne: 03 9095 6861 | Brisbane: 07 3166 9981 |
Perth: 08 6467 7739 | Adelaide: 08 8464 0233 | Hobart: 03 6237 0595 | Canberra: 02 6223 2580
National Number 1300 332 834
Sydney: 02 8211 1155
Melbourne: 03 9095 6861
Brisbane: 07 3166 9981
Perth: 08 6467 7739
Adelaide: 08 8464 0233
Hobart: 03 6237 0595
Canberra: 02 6223 2580