One of the major advantages to a Debt Agreement is that, unlike an informal arrangement which can be refused or broken by your creditors, it is legally binding. All your need is for the majority of your creditors to accept it, and all of them will then be bound by it. A Debt Agreement is a two-way street though, and if it’s going to be legally binding on your creditors, it’s only fair that it is binding on you too. In saying that, it is possible to break a Debt Agreement contract. But there are processes to be followed, and consequences for not completing it.
There are three ways by which a Debt Agreement contract can be broken:
- Self termination – the debtor (you) lodge a termination document with AFSA, which the creditors then vote on; you need the majority to accept the termination
- 6 month Statutory Default – if you do not make a contribution in a 6 month and 1 day period, it is automatically terminated
- Creditors termination – your creditors can have your Agreement terminated if you are not meeting your obligations
You may need to terminate your Debt Agreement due to extenuating life circumstances, eg. losing your job, or falling seriously ill, in which case it is unavoidable and the negative effects most likely inconsequential. If you simply do not wish to continue, though, you should carefully consider the following:
- Your debts will be reinstated
- They will start incurring interest again, and it may even be back-dated
- Your credit file will not be updated to show that it has been completed, and instead will show as “unfinalised” until the default is wiped out after seven years
To give your Debt Agreement the best chance of success you must have a detailed budget in place and a genuine desire to see the end of your debt problems. Your Debt Agreement Administrator has an obligation to you to ensure that your payments are (barring unforeseen circumstances) reasonable and sustainable, and that you have been fully briefed on your commitment and its consequences. It is then up to you to ensure that your obligations are met and the Agreement is completed. If you fail to complete it, yes, it can be broken – but a Debt Agreement provides you with a way to actually pay out your debt, not just defer it for a while, so it would be a genuine shame if you did not complete it.
For free and impartial advice on Debt Agreements and both their pros and cons, call us at Debt Free Australia on 1800 676 598.