What is a debt agreement?
Dealing with unmanageable debt can be stressful and quite serious, which is why it’s important to be aware of your options first before taking the next steps. Because a debt agreement is a legally binding agreement between you and your creditors – other names often used to describe a debt agreement are Part IX (9), or part 9 debt agreement – it's essential you have the support you need to guide you through this process. Our team at Australian Debt Solvers are here to highlight the best options for your financial needs
Our guide ‘What is a debt agreement?’ provides you with a comprehensive explanation covering all your questions and answers surrounding debt agreements.
How does a debt agreement work?
A debt agreement works as repayments made that suit your financial situation. It is a percentage of your debt that is affordable to you over a period. Rather than making repayments to creditors, you make one repayment to your debt agreement administrator. Once you have completed all repayments, the agreement ends and your creditors will not be able to recover any remaining funds owed. When entering the debt agreement, your creditors agree to accepting an amount of the debt owed.
If a debt agreement sounds like an appropriate path to take for your financial situation, our team at Australian Debt Solvers can talk and guide you through entering a debt agreement. We will submit the proposal on your behalf to alleviate as much stress as possible.
It is important to note that a debt agreement is different from a debt consolidation loan or informal payment arrangements with your creditors.
Is a debt agreement an alternative to bankruptcy?
A debt agreement can be an alternative to declaring bankruptcy if you are in the financial state to do so. What this means is, there are a number of criteria you must reach in order to enter a debt agreement, likewise for declaring bankruptcy.
The main point of difference is the amount of debt you are facing, which will determine if declaring bankruptcy or entering a debt agreement is more suitable for you.
We have outlined the key differences in our article ‘The difference between Bankruptcy and a Personal Debt Agreement’.
How do I apply for a debt agreement?
Our team at Australian Debt Solvers can assist you in applying for a debt agreement and we will submit the application for you.
The eligibility criteria are as follows:
- Appoint a debt agreement administrator
- They are on the AFSA list of registered debt agreement administrators.
- You are aware of your costs.
- You understand the agreement for which you are applying.
- Your appointed administrator prepares your debt agreement proposal following discussions surrounding what you can afford to repay.
- Your creditors either accept or reject your proposal.
- Given majority of creditors accept the proposal, it now becomes a debt agreement. In this instance, all creditors receive the same amount of proportion for funds owed.
- Given majority of creditors reject the proposal, there is no debt agreement. If your debt is over $10,000 your creditors can apply to declare you bankrupt.
How long is the debt agreement for?
A debt agreement can vary from up to three to five years. Typically, a debt agreement lasts three years on average, however, if you own your own home then the debt agreement can be proposed to up to five years.
If any unforeseen changes occur financially, you may also be able to extend the debt agreement up to five years.
Can I pay out a debt agreement early?
Paying out a debt agreement early is possible. This can occur when you meet your repayments early. You can be released from the debt agreement given you meet your obligations.
It is important to note that debt agreements are interest free, therefore it is not advisable by the Australian Debt Solvers team to repay them early. Our recommendation is to put the extra funds into a savings account.
3 things to do before entering into a debt agreement
Add these three essential things to do to your list before entering into a debt agreement.
- Speak to a financial expert
There are numerous financial experts you can talk to, and the majority of their services are free, independent, and confidential. A financial expert will be able to offer the best options to suit your financial situation.
- Understand the consequences
There are consequences that come with entering into debt agreement. It can affect your ability to get credit and you will appear on a public register for a period.
- Know your options
Entering into a debt agreement is one option available to manage debt. There are other options available that your financial expert will outline.
For more information on understanding your options when it comes to managing debt, read our article ‘Debt agreement as an alternative to declaring Bankruptcy’.
Our team at Australian Debt Solvers are available to answer all your questions surrounding what is a debt agreement. Call us today for a free consultation today on 1300 701 186.
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