What is a debt agreement?
A debt agreement is one of two agreement options available. A debt agreement, also known as a Part 9, is a legally binding agreement between you and your creditors[?].
Debt Agreements can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.
How debt agreements work
- You negotiate to pay a percentage of your combined debt that you can afford over a period of time.
- You make repayments to your debt agreement administrator, rather than individual payments to your creditors.
- After you complete the payments and the agreement ends, your creditors can’t recover the rest of the money you owe.
A debt agreement may be a suitable alternative to bankruptcy
- It can benefit your creditors as they may receive more money than if you were to become bankrupt.
- It can provide relief if you’re unable to manage your debts, but there are some consequences which may affect you.
- Be aware that there are limits to the amount of debt and income you can have to be eligible.
Debt agreements are not:
- consolidation loans or agreements to borrow money.
- able to release you from all types of debts – some debts you will still need to pay.
Before entering a debt agreement
Financial counsellors can help and are available in every state and territory. Their services can be free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt.
Know your options
A debt agreement is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include 21 day relief, personal insolvency agreements and bankruptcy. There are also informal options (such as approaching creditors and requesting a payment plan).
For more information see AFSA: What are my options for dealing with unmanageable debt?
Understand the consequences
Entering a debt agreement may have a serious impact on you. It may affect your ability to get credit, and will appear on a public register for the life of the Debt Agreement. However, all traces of being in a Debt Agreement will clear when the life of the Debt Agreement has been completed. This is different than a Bankruptcy where you name stays on the Public Register forever.
For more information see AFSA: What are the consequences of a debt agreement?
Debt agreement fees
A fee is charged for lodging a debt agreement proposal.
Normally, there are also other fees involved in proposing and managing a debt agreement.
The fees between administrators vary, ensure that you discuss with them what their fees cover before you decide to go ahead. The total set up fee (which may include the AFSA lodgement fee) and any ongoing fees must be included in your debt agreement proposal.
How long is the debt agreement for?
It depends on the agreement you negotiate with your creditors, but it’s usually 5 years, but can be shorter if proposed by the DAA. Contact Armada Advisory to discuss your circumstances and how long the debt agreement will last.
Find out about:
- Am I eligible for a debt agreement?
- What are the consequences of a debt agreement?
- Lodge a debt agreement proposal
- What is a personal insolvency agreement?
Contact a Armada Advisory expert today and let them assist you in making the right decision today.