Debt Agreements – what you need to know
If you’re struggling with debt, a Debt Agreement may be the right solution for you. At Safe Debt Management we’re all about making your life better and can help you on the journey out of debt.
What is a Part 9 Debt Agreement?
A Part IX Debt Agreement is a legal agreement with your creditors to repay your outstanding debt at a reduced rate you can afford. It is a mutually binding agreement that falls under Part IX of the Bankruptcy Act. It does not mean you are filing for bankruptcy.
What is an Informal Debt Agreement?
With an informal agreement we negotiate with your creditors to repay your debts at an amount you can comfortably afford. You only make one regular payment to Safe Debt Management in line with your pay cycle, and we manage the repayments to your creditors for you. An ‘informal’ is not listed on your credit file so there is no impact on your credit score.
What are the advantages of a Debt Agreement?
- A likely reduction in the total debt owed.
- Debts combined into only one affordable regular repayment.
- Interest and fees on your debt are frozen.
- Enables you to keep certain trading licenses and assets (that may be lost in bankruptcy) and travel overseas.
- Provides a way out of debt to rebuild your financial future.
Safe Debt Management also provides administrative support including dealing with your creditors, government regulators, budget assistance and dispersing repayments. States have different laws regarding trading licenses. For more details, chat to a debt specialist or financial counsellor.
Who is eligible?
Debt Agreements are suitable for people with unmanageable debts i.e. people who are unable to pay their debts as they fall due. In addition, they must not have had a previous Debt Agreement or been bankrupt in the last 10 years. There are also thresholds for assets, income and total unsecured debts (for more info – contact Safe Debt Management).
What debts can be included in a Debt Agreement?
- Unsecured debts from credit cards, personal loans, lines of credit and closed accounts / bills.
- Unsecured joint debts. A co-borrower will also remain responsible for the debt and will be required to continue payments. Couples with joint debts may benefit from both entering a Debt Agreement.
- ATO tax debts and Centrelink debts are included. Once the Debt Agreement has finalised, ATO and Centrelink debts are extinguished, however all Child Support debts and debts incurred by fraud, will not be.
What debts can’t be included?
- Court-ordered debts, fines, child support payments and other debts incurred after the Debt Agreement starts.
- Secured debts are not included. Debts such as a vehicle loan, a home loan or, if you are in a rental agreement, you can keep possession of this property by continuing to repay your secured creditors outside of the Debt Agreement.
How do Debt Agreements differ from debt consolidation loans?
Debt Agreements are not loans, rather they are an agreement with creditors. It is an interest-free way of combining current unsecured debts into one regular repayment set to match your budget. A debt consolidation loan is simply taking out a new larger loan to combine debts. Those with a bad credit score may have difficulty qualifying for a debt consolidation loan.
Why wouldn’t I just go bankrupt instead?
Unfortunately, there are no quick fixes for dealing with unmanageable debt. Declaring bankruptcy brings with it many requirements and restrictions like having assets sold by a trustee, having your income monitored, loss of certain trading licenses and having to surrender your passport, your credit score taking a big hit (to name just a few). Through a Debt Agreement, you are basically asking your creditors for a fair go by presenting them with your best offer. This way you are legally allowed to hold onto assets with split equity up to the value of the asset threshold (for more info – contact Safe Debt Management). You will not have your income monitored and you will not have to surrender your passport.
How does a Debt Agreement work?
- A Debt Agreement is proposed according to what you can afford to repay
- The proposal is sent to AFSA and your creditors for voting
- During the voting period, payments to your creditors are frozen
- If the majority of creditors (based on debt value) accept the terms, the proposal is approved
- Once approved, the debts remain frozen and all further interest is stopped
Once the approved debt agreement commences, you begin repaying the agreed amount to the administrator (Safe Debt Management) who disperse the payments to the creditors. When you have paid the agreed amount, your creditors cannot recover the rest of the money you owed and you will be financially free of those debts.
How does a Debt Agreement affect my credit score?
A Debt Agreement is listed on your credit report for a minimum 5 years and will impact your ability to obtain further credit during this period. If you have a bad credit score and lenders will no longer lend to you, a Debt Agreement is a way to repay your debt sooner, improving your financial position over time.
Can I get a home loan with a Debt Agreement?
There is no law against applying for new finance such as a home loan when you are in a Debt Agreement, however, it may be difficult as lenders will take your current financial obligations, credit history and ability to repay into account when assessing your application.
What are the consequences of a Debt Agreement?
Entering into a Debt Agreement is a serious step in taking action to repay unmanageable debt. There are consequences that may impact you relating to your obligations, businesses, credit record and other issues depending on your circumstances. For more information, refer to the AFSA website.
What are the costs?
A $200 non-refundable AFSA lodgement fee is payable at the time of submitting all paperwork. To make life easier, you can pay 4 instalments of just $50 per week, payable towards your AFSA lodgement fee.
The set up fee for a Part 9 Debt Agreement with Safe Debt Management is $1,958.00. This amount becomes part of your Debt Agreement – you are not required to pay this separately. This fee covers the time we spend contacting, negotiating and obtaining all relevant information from your creditors. In addition, we explain all paperwork to you and prepare and lodge the Debt Agreement.
Furthermore, once your agreement is activated, we manage all payments for you. We disburse payments to your creditors on a quarterly basis throughout the term of your agreement with the funds you transfer into our trust account. We also send you quarterly progress reports so you can see what you have paid and exactly what you have left to pay to become debt free!
To ensure compliance, included in your Debt Agreement are management fees payable to both AFSA and Safe Debt Management during the term of your agreement. These fees are included in your payments and may vary depending on the amount of your debt.
It is important to be aware of companies that charge upfront fees which are payable even if your Debt Agreement proposal is not accepted. In the unfortunate event that your proposal is not accepted by your creditors and you decide not to submit another proposal – we do not charge a fee.
What regulations do Debt Agreements come under?
Debt Agreements come under Part IX of the Bankruptcy Act 1966. AFSA (Australian Financial Security Authority) is responsible for administering the Act and associated regulations. A Debt Agreement ensures you are guarded against any further legal action including bankruptcy during your agreement on the debts that have been included. Basically, you are protected under the Bankruptcy Act without going bankrupt.
AFSA maintain a database called the NPII (National Personal Insolvency Index) that includes the details of all people that have entered into any form of Administration.
Who is Safe Debt Management?
Safe Debt Management is a registered Debt Agreement Administrator (RDAA #1251). They manage the individual debt agreement process for their clients.
Need more information? Book your free debt assessment today!