Financial product: Deed of acknowledgment of debt and settlement agreement
ANDREY BORTNIKOV / 123RF
Failing under massive debt can feel like you’re serving a prison sentence. A “Deed of Debt and Settlement Agreement” may be the key to eventually breaking free.
Product: Deed of acknowledgment of debt and settlement agreement
How it works: One of the foolproof rules of life is that some of the people who borrow money from banks fail to repay. It won’t always be their fault if they fall behind. Difficult times sometimes strike without anyone being to blame.
The case of a man who owed Westpac $ 275,321.98 in mortgage, credit card and business debt has come to light in a rather bizarre court case. The man encountered financial problems and defaulted on his debts.
Banks have a range of options, including debtor bankruptcy. A much less drastic option is for the lender to enter into an agreement with the borrower. This is recorded in a “Deed of Acknowledgment of Debt and Settlement Agreement”.
These acts have a lot in common with loan agreements. They set out the indebtedness and obligations of the debtor as a result of the transaction.
In the man’s case, the bank agreed to accept $ 50,000 in five equal installments from him over the next five years. Once the final $ 10,000 payment was made, he would be released from debt.
However, these deeds are complex legal documents and, like mortgages, they include “default” clauses to keep the debtor focused on his payments.
In the case of this deed, a default clause stipulated that the entire debt became due immediately if any of the dates of the $ 10,000 payments were missed. In addition, the deed made the debtors responsible for paying the fees that the bank had to pay for the execution of the deed. There is nothing strange about these things. They are in standard mortgage contracts.
Despite the deal he made with the bank – which effectively allowed the man to repay just under a fifth of the amount he owed – he did not make the payments he would have. had to have under the deed, which he signed in 2010.
The bank appears to have been patient with the man over the missed payments until he tried through a series of letters containing claims Westpac called “pseudo-law” that his debt to the bank had been acquitted.
His arguments found no favor earlier this month at the Auckland High Court, where Associate Judge Roger Bell delivered a judgment saying that due to defaults under the deed, all of the remaining debt – approximately $ 254,681.98 – was to be paid immediately, along with charges in excess of $ 15,000.
Verdict: The Bell judgment provides insight into how these acts are structured and, unfortunately, how they can be executed if the debtor fails to repay. He also reminds debtors that even if their lives deteriorate, it may be possible to get lenders to make a deal to pay back less than they owe.