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How a Debt Agreement Works

There comes a point in the life of an individual or a company when things get really difficult and out of control. These situations, if not handled properly, often lead to bankruptcy. But bankruptcy is not the only option when such things happen. If the debtor still does not want to declare bankruptcy, the individual or the company can opt to take an act of bankruptcy and propose a debt agreement. If the debtor chooses to do this, the individual or the company will have to go through a lot of steps and do a lot of things to acquire a debt agreement.

What is the debt agreement process?

In the process, both the debtors and creditors are involved and an administrator is what comes between the two parties. Before formally entering a debt agreement, a preliminary assessment will first be conducted to assess the debtors’ current financial condition. If the administrator deemsthe debtor capable of repaying the debts owed, the debtor will then be required to present a proposal to be assessed by the creditors.

The proposal will be assessed by the administrator and the creditors. All the properties and other financial responsibilities of the debtor are checked and upon approval of the proposal, the contract will be sent to all of the creditors.

These agreements could be accepted or rejected, depending on the individual creditors, but in most cases, the debt agreements are approved. Once it has been accepted by all of the creditors, it will become legally binding. After this, the only thing the debtor will need to do is pay the debts on the agreed payment periods.

Types of Debts in a Debt Agreement

Individual or companies who cannot afford to repay their debts negotiate with their debtors, wherein the creditors will be allowed to pay less than the full amount of their debt. This amount is usually composed of the most common types of debts treated in a debt agreement which are the following: the secured debts, the unsecured debts, and joint debts. Secured debts are the ones tied to the creditors’ assets.

With the secured debts, the creditors are entitled to receive benefits from the remaining assets of the creditors. Unsecured debts are the ones not tied to the assets. This means that the creditors do not have the hold on the creditors’ properties if the creditor does not make loan and debt repayments.

Lastly, joint debts are debts owed together with the debtor. This means that the other party involved in the joint debts will still have the responsibility to pay the debts solely while the company or the individual is still under a debt agreement.