Basic Information on Debt Agreements

To never spend more than what you have or what you are earning is a lesson taught to everyone even before they learned algebra and geometry. It is one of the few elders’ teachings that actually apply to every company or individual. This condition is very much-avoided, but there come tough times and unavoidable circumstances arise, which makes it impossible for companies or individuals to pay their debts.

If this situation becomes inevitable, it can be said that the companies or individuals go through the state that we call bankruptcy. When this happens, the company or the individual can declare bankruptcy and propose a debt agreement.

What is a Debt Agreement?

A debt agreement is a binding agreement between the debtor, which can be a company or an individual, and their creditors. The agreement is the way for the debtors to clear their debts when they are experiencing difficulty. This is a legal agreement that allows the debtor and the creditor to come to terms that are acceptable for both parties. The debtor needs to pass a proposal on how the debt would be paid.

A debt agreement administrator will then look into the current financial status of the company or individual, which includes the assets, liabilities, income, and expenses of the debtor, to determine their capability to pay off their debts. The administrator will then approve or reject the proposal based on the current records of the debtor. If the debt agreement is approved, it would help the debtor pay the debts in an easier and more manageable way without compromising the rights and preferences of the creditor.

Terms of a Debt Agreement

The terms agreed upon in a debt agreement can be varied or terminated under certain conditions and these can be carried on with the help of the administrator. If the current status of the debtor changed, whether for the better (e.g. The debtor’s company performed better after the agreement, which is not likely to happen.) or for the worse (e.g. The debtor lost the ability to pay the amount agreed upon at the right time.), modifications can be made to the initial debt agreement agreed upon by both parties. However, these changes can only be made if one party agrees to the proposal presented by the other.

The termination of it also happens if there is a change in the status of the debtor. The debtor can choose to stop being in a debt agreement and just go bankrupt. If this happens, termination should be discussed with the creditor and the administrator of the agreement.