Understanding debt agreements

A debt agreement is when all interested parties agree on an amount to be regularly paid towards a specific debt. A debt agreement can also be called a Part IX debt agreement and generally must meet certain criteria.

 

What are the benefits of entering into a debt agreement?

  • Once you enter into a debt agreement, your debts will no longer accrue interest. If you complete the debt agreement, you will be released from your debts. Your creditors cannot recover the remainder of any monies you may owe.
  • You’ll be able to keep your home, your car and other unprotected assets.
  • Any property you acquire in the future will not be affected. This could include gifts, winnings or inheritances.
  • You may travel overseas.

 

What are the negative consequences?

  • Your debt agreement may require you to pay substantial upfront and ongoing fees.

  • If the agreement is not accepted or completed, you will not receive a refund of previous payments.

  • You may not be declared bankrupt, but you will still have committed an act of bankruptcy. This will have serious consequences.

  • The act of bankruptcy will be listed on the National Personal Insolvency Index for your lifetime, which may affect future borrowing applications.

  • The agreement will be on your credit report for 5 years and may affect future lending opportunities.

  • If your circumstances change and you’re unable to repay the agreed amount, you may face cancellation of the agreement and loss of funds.

 

What options exist?

  • It’s always best to seek legal advice before you sign any legal document. Talk to a financial counsellor to be sure you can make this decision without putting yourself under more financial stress.
  • Remember, do not sign any documents that you don’t fully understand. Ask your financial counsellor to explain the difference between a debt agreement and bankruptcy.

Preventative measures

One
Seek legal advice
The sooner your debtors know about any problems, the sooner they can help you.
Get a second opinion
Make sure you always get a second opinion if you are signing a Debt Agreement. The person who is advising you may benefit financially by getting you to sign. So it’s best to check!

Additional information

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Looking for guidance?
Contact us today to organise a meeting with one of our financial counsellors.

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