What will happen to my secured debts, such as my car loan and mortgage? Creditors are contacted in writing by AFSA and invited to vote either in favour of supporting or rejecting your proposed debt contract. You are also asked to provide the amount of outstanding your account, to indicate whether the account is secure or unsecured, if your account is common or if there is a guarantor, or if you have other debts to that creditor. If you can afford to maintain mortgage payments and your other cost of living and meet the proposed debt payments, this may be the best option for you. A debt contract (also known as Part IX Debt Agreement) is a formal way to settle most debts without going bankrupt. We take a closer look at the four benefits of the debt contracts that have been jointly supported… This debt must be included in your debt contract. However, the surety is not released from the debt, and if you stop paying the creditor, it is likely that he will sue the person under the guarantee. Debt agreements are strongly encouraged by private companies entering into and/or managing debt contracts for a fee, and the number of debt contracts has increased significantly in recent years. Debt agreements are often marketed as a kind of interest-free “credit consolidation,” which is misleading. It is important to understand the risks and consequences of entering into a debt contract and to understand what your other alternatives might be. You may be tempted to enter into debt contracts to reduce your interest or simplify your repayments, but you can actually avoid your repayments without any real rigor. A debt contract is not really appropriate because it will affect your ability to get loans and other services in the future.
You may be able to refinance at a lower interest rate and/or consolidate your debt to make things easier. You may have ways to increase your income or reduce your expenses. See Money Smart at www.moneysmart.gov.au for options that Rushika had with refunds on 3 credit cards and a personal loan. She works, but she is a very young employee and never seems to be able to pay much more than interest on her credit cards. She came across an internet ad for a service called Beat Debt Solutions, which promised to stop the interest on their debts and wrap all her debt repayments in a simple payment. This is only a short guide and it is recommended that you consult a financial advisor to discuss the best option for you in your circumstances. See fact sheet: Broker for debt agreements and fact sheet: Get help for a list of additional resources. Bankruptcy usually lasts only 3 years (although it can be increased to 5 or 8 years in certain circumstances) and you only have to pay income contributions (payments on your debt) if you exceed a certain threshold (see www.afsa.gov.au and select the current amounts). A debtor who proposes a debt contract commits a bankruptcy. It is not the same as a bankruptcy.
A debt contract is an alternative to bankruptcy, but as it falls under Part IX of the Bankruptcy Act, the proposal of a debt contract is considered a bankruptcy deed. A debt contract is not the same as a debt consolidation loan or informal payment agreements with your creditors. While it is generally considered that a debt contract is “better” than a bankruptcy, both have a serious impact on your credit report.