What is a Debt Agreement?
A debt agreement is a formal and legally binding contract between you and your creditors, which while not formally being a bankruptcy, does fall within the auspices of the Bankruptcy Act 1996. Under such an agreement, your creditors agree to accept from you an agreed amount of money, which you are in a position to be able to afford, over an agreed period of time in settlement of your debts. Once the amount agreed has been paid in full, anything further you may have owed your creditors which was contained in the agreement is gone, with no legal recourse to pursue you.
How Does it Work?
In a part 9 debt agreement, you work with a debt agreement administrator to prepare a proposal to your creditors, making an offer to pay a certain sum of money to them, in full payment of your debts, over an agreed amount of time. It may be that your income leaves you in a position where repaying everything you owe is just not possible. Through the debt agreement, you may only offer to pay a certain percentage of the overall debt. Even a reduced amount may be attractive to creditors, especially if they may well actually receive less if they push you into a formal bankruptcy. If a majority of the creditors accept your proposal, an agreement is entered into, which is legally binding on all parties, with each receiving the same percentage of money repaid.
What Debts Can Be Included?
Not everything can be included in a debt agreement, and you can still be liable for these even after everything else has been paid. A debt against a property is considered a secured debt and the creditor may force a sale to recover some or all of the loan, with any shortfall then possibly becoming part of a debt agreement. With unsecured debts such as credit cards, utility bills, overdrafts or unpaid rent, a debt agreement is generally possible, while unpaid fines to a court and child support is not. Neither are any additional debts you may accrue after the debt agreement proposal has been received.
How Does Bankruptcy Work?
Bankruptcy is a legal process, which can release you from much of your accrued debt, whereby you are declared unable to pay your debts. You may enter it voluntarily through a debtor’s petition, or it may be forced upon you by a creditor. A trustee will be appointed to whom you must declare all of your assets and liabilities. The trustee will then be responsible for selling your assets, as permissible, to help repay some of your debt. You may be ordered to make compulsory additional payments if your income is above a certain level. Bankruptcy generally lasts for three years and a day, during which time you may be ineligible for certain types of employment, or be subjected to restrictions on obtaining any credit or even travel.
It is important to understand that entering into either bankruptcy or a Part 9 debt agreement is a very serious move and before deciding about either, it is essential to receive expert advice on your situation and listen to your options to deal permanently with that unmanageable debt.