Debt Agreements

A debt agreement offers a debtor some of the same protection as bankruptcy. A debt agreement does not release anyone who was jointly liable with the debtor such as a cosigner, and does not release a guarantor of the debt or affect the rights of a secured creditor. The release also terminates if the debt agreement is declared void by the court. A debt agreement does not halt action being taken to enforce a child support order. You still pay your creditors by preparing an offer to them. Your offer must be based on analysis of your income and expenses. The debt agreement must be considered achievable and sustainable.

You or an administrator submit to your plan to The Australian Financial Security Authority (AFSA). They make certain your proposal complies with the requirements of eligibility and conduct the voting process with creditors. The debt agreement proposal is sent to creditors to vote on and is considered accepted only when a majority of creditors vote in favor of your proposal. Creditors with provable debts at the time the debtor's proposal are bound by the agreement, even if they voted against the proposal. You are completely liable for any debt incurred after AFSA accepts your proposal to send to creditors for voting.

In a nutshell, a debt agreement settlement can lower your monthly payments and total debt by negotiating with your creditors. A debt agreement might be your quickest and least expensive way to settle your debts and avoid filing bankruptcy. A debt agreement is about making your debt manageable. Your debts are fixed at the date the proposal is entered on the NPII and interest stops accruing. Creditors cannot take or continue action against you.

How do I know what to offer?
Each person’s financial situation is different. Your goal is to create a situation you can live with and that your creditors will accept.  You will need to list all your creditors and loan balances, your monthly income and every expense, and then compute what you can realistically pay creditors each month. A Registered Debt Agreement Administrator is not mandatory but can help you create your proposal. This administrator is also able to submit your plan to The Australian Financial Security Authority (AFSA). Examples of proposals include periodic payments of amounts less than the full amount of your provable debts, a lump sum payment of less than the full amount of all  provable debts, a pause or hold period for making any payments, the sale of property to pay debts.

If AFSA accepts your proposal the creditors listed are provided copies and given a certain amount of time to accept or reject your proposal. The proposal becomes a legal debt agreement when accepted by a majority of creditors or those who represent fifty per cent of the total dollar value of creditors responding.

What are the benefits of a debt agreement?
Having more money in your hands each month and knowing all your obligations are met is one of the utmost benefits of a debt agreement. This can dramatically reduce your stress and allow you to start a savings account for emergencies. Your monthly cash increases as you lowered payments to creditors and you will only have to make one payment each month to cover all of them. Your total debt is often less, you are no longer being charged interest and while your agreement is in effect creditors cannot take action to recover their provable debts. This all means you can get out of debt sooner and no longer be forced to deal with creditors or collectors. The negative effect on your credit rating will not be as bad as if you went into bankruptcy.

What are the disadvantages of debt agreements?
If you cannot make your payments under your debt agreement at any time, the agreement may be ended and the creditors can continue collection of the debts. Debt agreements are reported to credit agencies and appear on the National Personal Insolvency Index (NPII) as of the date of proposal by AFSA. This will unfavorably affect your ability to acquire credit for a number of years.


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