Let me start by saying I am not advocating that debt agreements are bad for everyone. What I am saying is that some companies who sell credit repair – and some who specialise in debt agreements – are giving bad advice to consumers. There is encouragement to enter these agreements when this is not in the best interests of the consumer. This is because they make good money out of setting up Part 9’s.
I had a potential client ring me this week. He said he had two unpaid default listings on his credit file – one with Vodafone ($600 outstanding) and one with Rent to Own ($650 outstanding). He also had another debt he was paying off in an affordable payment arrangement with another credit provider that did not appear on his credit file. The payment arrangement was 24 monthly payments of $364. His goal was threefold: to keep paying off the payment arrangement to avoid a negative listing with Veda, to pay off the other two debts that appeared on his credit file (one which he said was unfair), and to have his credit history cleared of the two defaults, so he could go onto a mortgage with his partner.
He had already put this scenario to another credit repair company and the advice that he got shocked me. He was advised to enter a debt agreement for these three debts totaling less than $10,000. This advice meant he would have a bankruptcy listing placed on his credit file for up to 7 years (because that is how long a bankruptcy – which is what a Part 9 debt agreement is – stays on your credit file).
At this point in this saga, I want to give you some facts and figures and consequences of entering a debt agreement:
- Debt agreements are only for unsecured debts.
- The maximum amount of unsecured debt you can put into a debt agreement is $107,307.20.
- As debt agreements are a form of bankruptcy, you are put on the National Personal Insolvency Index (NPII) – for life. Anyone can access this information – it is publicly available.
- As soon as you enter a debt agreement, it will appear on your credit file and remain there for at least 5 years, and in some cases longer. All ability to get low-cost finance will cease during this time.
- One of the many consequences listed on the Australian Financial Security Authority (AFSA) website is that “Secured creditors may seize and sell any assets [for example, a house] which the debtor has offered as security for credit if the debtor is in default.” This is because they are alerted to your change in status.
The client who contacted me did not sound like a young man, so by the time this dropped off his credit file, age may be a factor in achieving a loan approval.
This was my advice to him:
We can work to remove the two adverse listings on your credit file. As part of that, we can negotiate on the two debt amounts. If an error was made in listing you, the credit provider will often reduce the debt, and in 83 per cent of cases we work on, we find errors in the process. We can also set up any payment plans you need.
In addition, we can negotiate in relation to the third debt that is not yet on your credit file. We can see if we can get a better arrangement for you.
None of this work will negatively impact your credit file or ability to get low-cost finance. In fact, our work will potentially improve your credit file and allow you to be approved to go into a mortgage with your partner.
Now that’s what I call a good solution.
Advice: Please be aware of the sales tactics of debt agreement sales people, and seek a second opinion as it may not be the best solution for your circumstances.