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Is a Debt Agreement Good or Bad?

If you are struggling with debt, you would have heard of a Part 9 Debt Agreement. But you might be asking is a Debt Agreement good or bad? To take the guess work out of debt relief, we have put together a quick quiz to see if a Debt Agreement is suited to your circumstances. Take the Quiz Now!

Is a Debt Agreement the right solution for you?

Debt Agreement - Good or Bad?

What is your current level of employment?

A Debt Agreement might work for you.

In order to enter a Debt Agreement, you need to have a regular source of income. In fact you need to earn enough money to cover your basic living expenses such as groceries, petrol, rent, etc. Once these are paid for you need to have an amount left over which you can designate as your Debt Agreement repayment. If you can't afford your basic living expenses you may need to consider Bankruptcy.

You need to try an alternative solution.

In order to enter a Debt Agreement, you need to prove to your creditors that you will have enough money to make regular repayments. Without a regular source of income, you may need to consider Bankruptcy.
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Now you have figured out whether a Debt Agreement is good or bad for your situation, you can learn more about it.

What is a Debt Agreement?

A Debt Agreement is a formal agreement between you and your creditors outlining a more affordable repayment schedule. After working through a budget, you will determine an amount to put forward to your creditors in lieu of all your debts. Your creditors will vote to accept or reject your proposal and often, you will only need to pay a small percentage of every dollar you owe to satisfy your debts. All interest and fees are frozen during a Debt Agreement.

A Debt Agreement is a legally binding agreement and is governed by the Australian Financial Security Authority. It is part of the Bankruptcy Act and entering into a Debt Agreement is an act of insolvency. A Debt Agreement will have a temporary impact on your credit file, and often, is no worse than the damage created by defaults and judgments from your arrears and debt.

The Consequences of a Debt Agreement

When you enter a Debt Agreement it will be marked on your credit file for the term of the contract. This is usually 5 years, but can be extended if you miss Debt Agreement repayments. Also, for the term of the agreement, your name is noted on the National Personal Insolvency Index. This is a register of all bankrupt people in Australia. Unlike bankruptcy however, once your Debt Agreement has been repaid, your name will be removed from the Index.

For a more comprehensive list of the consequences of a Debt Agreement, you can read our previous blog post – Part 9 Debt Agreement Consequences.

What makes a Debt Agreement Good?

Debt Agreements were introduced into the Bankruptcy Act in 1996 as an alternative to Bankruptcy. They allow people with unmanageable debt to honor their creditors by repaying a percentage of their debts while interest and fees are frozen.

A Debt Agreement is a preferred method of debt relief for debtors and creditors alike. While Creditors have to settle for an amount which is significantly less than what they originally expected, they prefer to receive regular Debt Agreement payments then taking a chance on Bankruptcy and potentially recovering nothing for the debt. Debtors prefer Debt Agreements over Bankruptcy because the consequences are far less intrusive.