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Criteria for entering into a debt agreement

If you have any doubts as to whether or not you would qualify for a Debt Agreement it is advisable to consult a Debt Specialist. However standard procedure would mean that in order to be eligible to apply for a Debt Agreement you would need to fall in line with the following criteria, to which all borrowers seeking a debt agreement must meet:

 

  • You must be insolvent, and unable to meet the repayments that are asked by your creditors.
  • You must not have made any attempts to solve your debt using any methods under the Bankruptcy Act within the past 10 years. If this proves to be the case then your name will be found on the National Personal Insolvency Index thus making you ineligible to make a debt agreement application.
  • You must have debts equal to or exceeding $8,000.
  • The debt agreement can only cover unsecured debts.
  • Your net asset position, which is the total value of assets less the total value of your debts must be below $94530.80.
  • Your unsecured debts must not exceed $95,386.20.
  • Your annual salary or income after tax must not exceed $70898.10 or around $1,451.88 per week.

If you fail to meet any of the above criteria then any proposal for a debt agreement will be rejected. These criteria are put in place so as to help those who really need it and avoid the unnecessary negotiations of lesser payments to creditors, for borrowers who are capable of making such payments.

Which Debts qualify for a Debt Agreement?

Not all debts can be consolidated via a debt agreement. The debts need to be unsecured. Debts such as your car loans and your home loans are not covered by a debt agreement. Debts such as these would have to be dealt with directly between yourself and the creditor.

Most other debts can be dealt with by a debt agreement. Some examples of debts that can be consolidated under a debt agreement are:

  • Any store cards or credit cards.
  • Personal loans.
  • Any outstanding unpaid rental payments from previous tenancies.
  • Any outstanding professional accounts from accountants, lawyers etc.
  • Medical bills.
  • School fees.
  • Child care fee’s.
  • Any utility bills, including electricity, gas, water and phone bills. This includes any utility bills outstanding from previous addresses.
  • Any disconnected mobile phone accounts.
  • Trade debt such as suppliers.
  • Any outstanding payments on repossessed motor vehicles
  • Old pay television accounts.

All of these can be covered under the debt agreement and brought into one easy monthly or weekly payment to suit. The creditors will then be paid according to their debt.

Some examples of debts that can not be consolidated under a debt agreement are:

  • Social Security Debts.
  • Any incurred debt with the tax office.
  • Mortgage repayments.
  • Secured car loans.
  • Secured Personal Loans.
  • Fines of any sort, including court fines.

Debts such as secured loans can not be covered by a debt agreement as they are signed in on a fixed term with fixed APR and secured, usually against your property. Creditors offering loans of this sort do so for good reason; to guarantee their return. They will not enter into agreements with a debt agreement, because they already have a guarantee or leverage if you like against your property.

They do not need to enter into agreements, simply take that property and cover their losses. The same will apply to a secured car loan. The company will secure that debt against the car itself. Companies will deal with a debt agreement because it means they will get their money back, even if it takes a longer time. They would rather this than you declare bankruptcy and the debt be written off completely, thus them lose their money altogether.

Secured loans against a property or vehicle means the creditors have their guarantee, they don’t have to wait to get their money. These creditors will simply take that security, your house or car, and get their money back. Secured loans are easier for a borrower to obtain for this reason.

Debts with the tax office must be dealt with directly with the tax office themselves. The tax office will not deal with debt specialists or enter into any form of debt agreement. That said; if you’re struggling to meet a payment to the tax office, you should speak to them. They will often negotiate some form of agreement with you personally and allow you to make monthly payments.

Mortgages are a similar situation to a secured loan. When you take a mortgage, the lender gives it to you as an investment into a valuable asset. If you are struggling to make mortgage repayments then contact the creditor, they will usually be happy to give you a couple of months of reduced payments.

They would rather help you temporarily so that you continue to own the house, and continue to pay the mortgage payments, thus earning them interest over the full term of the mortgage. If you can not make the mortgage payments then you will be issued with a repossession order.

This is the absolute last resort, as it will lose the creditor years of interest payments. If the market is bad then the house may even sell for less than the value of the outstanding mortgage. No creditor wants to lose money, so a repossession order will only be issued if the situation becomes desperate and you have repeatedly failed to make your mortgage payments.

A repossession order means that an asset manager will take the property and work in your favour to ensure it gets the best possible value at market, hopefully ensuring that the sale covers the outstanding mortgage, leaving you at best with some excess money, and hopefully not still owing money on a house you no longer have.