If you’re currently in a situation where your debt is getting out of control, you may be exploring some potential debt solution options. A debt agreement is a genuine alternative to bankruptcy which can solve most debt problems. We’ve written up the process of how Debt Agreements work in order to give you some insight before you make any financial decision of how to deal with your financial turmoil.

How do Debt Agreements work?

Debt Agreements apply to debts which are unsecured such as personal loans, tax debt, credit cards, power bills, school fees, and any other unsecured debt. With a debt agreement, we work out how much you can afford to pay towards these unsecured debts. The affordability is worked out based on your income and living expenses. The purpose of this assessment is to make sure you do not enter into any further agreement which is not affordable and will cause any further financial turmoil.  You may be eligible for a debt agreement if you apply to the following:

• Are insolvent (unable to pay your bills on time)
• Have unsecured debts, assets and income below certain statutory limits
• Have not been bankrupt or entered into a debt agreement in the last 10 years

What is the Debt Agreement process?

A Debt Agreement administrator will assess your financial situation by looking at your current income and expenses in order to help determine a repayment figure that will be affordable to you but also acceptable to your creditors.  Your creditors will then have the ability to either accept or decline your debt agreement proposal.  Although it is important for the debt agreement to be of a reasonable amount, if you are genuinely in financial hardship, your creditors may agree to receive less than what they would normally expect to receive. In our experience most creditors expect to receive about 60 cents in the dollar (i.e. 60% of their debt).

If your Debt Agreement proposal is accepted, it will become legally binding. Once accepted you will need to make the agreed payments to your debt agreement administrator. Your administrator will collect the payments from you and will then distribute them (less their fee) to your creditors on a regular basis (usually every quarter).  As long as you meet the terms of the agreement, your unsecured creditors cannot take any further action against you (i.e. force you into bankruptcy or garnishee your income).

If you are wondering whether a Debt Agreement suits your needs, please contact the Debt Agreement Advice Centre for a FREE initial consultation on 1800 653 485.