If you are in a lot of debt and financial trouble or are at risk of financial trouble, an important term to become familiar with is debt agreement.
Debt agreements can decrease your financial obligations – the amount of money you owe – helping you to avoid bankruptcy.
Debt agreements are frequently used by Australians in financial trouble. They have helped Australian homeowners save their homes, cars, and businesses. While they benefit many people, they aren’t the right option for everybody. To help determine whether a debt agreement suits your personal situation, it is worth reading what is involved in a debt agreement.
What is a Debt Agreement?
When you don’t need to declare bankruptcy, but you recognise that you will not be able to pay your debts in full, a debt agreement can be used. Essentially, it is a formal agreement between you and your creditors. If an agreement is signed, you will still owe your creditors, but you will owe them a lesser amount.
Why would creditors accept a lesser amount? If you declare bankruptcy, then your creditors will receive no money at all. Instead of receiving nothing, your creditors may agree to the terms of the debt agreement because they recognise that is better to receive a portion of your debt owing than it is to receive nothing at all.
Formally, as the 1966 Bankruptcy Act states, a debt agreement is a binding agreement between a debtor and their creditors where creditors agree to accept a sum of money which the debtor can afford.
How is a Debt Agreement Made?
To create a formal debt agreement you will need to work with a debt agreement administrator, such as Revive Financial. They can help you identify the correct forms and submit them.
Here’re the basics of what happens:
- You outline the amount of your debt you will be able to meet and create a formal document agreeing to pay that amount – this is the debt agreement proposal.
- You send that document to your creditors.
- Your creditors will review your proposal and decide whether they support it.
- If it is supported by your creditors, your debts owing will be changed to the amount specified in the agreement.
Are You Eligible to Propose a Debt Agreement?
Debt agreements can be attractive financial tools, but they are not available to everyone. To be eligible to propose a debt agreement, you must:
- Be insolvent – you’re unable to pay your debts.
- Have not been bankrupt or had a debt agreement in the last 10 years.
- Have unsecured debts, assets and after-tax income for the next 12 months all less than the indexed amounts.
Can a Debt Agreement Improve Your Financial Situation?
If you can see the benefits of a debt agreement to your financial situation, you can approach Revive Financial to speak to an insolvency expert and determine the best financial path for you to follow. If your situation is best aided by a debt agreement, we will create an attractive proposal to your creditors to lower your debt burden to a manageable level. Contact us on 1300 117 256 and discuss your financial future today.
For more information on personal insolvency, check out our personal insolvency page here.