26 June 2020
Understanding the consequences. Can’t pay your debts and your attempts to reach a solution with your credit provider haven’t worked? There’s a range of options available to you.
- This video from the Australian Financial Security Authority might help you understand some of them.
- A debt agreement, bankruptcy and personal insolvency agreements are ways of dealing with debt when other options haven’t worked.
- It’s important that you fully understand the consequences of each of these options. Always deal with someone you know you can trust.
Debt agreements are a big deal
- While it might seem like the salvation you need, entering into a debt agreement is a serious step.
- As advised by ASIC’s Money Smart, you should only consider proposing a debt agreement if you’ve explored all other options.
- A debt agreement is an act of bankruptcy. Therefore it will impact your credit score for many years to come. This may stop you from gaining further credit, being successful in rental applications, getting a mobile phone, and may impact your partner’s ability to get credit also.
What is a debt agreement?
- It’s a binding agreement facilitated by another party (debt agreement agency) who make their money by out of you entering into debt agreements.
- They’re also known as a Part IX or Part 9 debt agreement as they fall under Part IX of the Bankruptcy Act. This makes a debt agreement an act of bankruptcy with serious long term consequences. Consider using the third point of the last section here instead of in the last section. Otherwise it is unnecessarily repeating itself.
Who can enter into a debt agreement?
- As advised by Money Smart, a debt agreement is available to low income earners who can’t repay their debt in full, but want to avoid declaring full
- There is a $200 fee to lodge your debt agreement proposal. There will usually be numerous other fees involved, including paying your debt agreement administrator.
- Debt agreements don’t release you from debt.
Look before you leap
- Before considering a debt agreement, talk to a free and independent financial counsellor. There may be simpler and cheaper options to manage your debts.
- These include trying to negotiate a revised repayment plan or in some circumstances applying for hardship.
The downside of a debt agreement
Some disadvantages you should be aware of include:
- As a formal agreement under the Bankruptcy Act, a Part IX debt agreement means your name and other details will be listed on the the National Personal Insolvency Index (NPII) for 5 years from the date of the agreement or 2 years after the end date, whichever is later. If your proposal isn’t accepted or lapses, this info will appear for a year.
- Your debt agreement will be listed on your credit report for up to 5 years, or perhaps even longer.
- Any time you take on new debt over a certain amount, you have to tell your creditors about your debt agreement.
- If you have a business, you have to tell anyone who deals with your business about your debt agreement.
- A debt agreement might prevent you from taking certain jobs or professions.
- As a debt agreement is an act of bankruptcy.
We know it’s tough out there
At City Finance, we’re different to other lenders – we understand how tough life can be and are here to help. We take the time to get to know you, and focus on your unique situation to tailor a loan and repayments around you and your needs.
Whether you need new finance or want to discuss making changes to your existing arrangements, call us on 1300 34 62 62 today for a chat with our friendly staff, and together we’ll work on a solution to see you through.
This article is provided as a guide only and does not constitute financial advice. We encourage you to do your own research through the Australian Financial Security Authority and Moneysmart to reach a debt management solution that is appropriate for you.