A debt agreement is an alternative to bankruptcy that may be available to assist you with unmanageable debt.
Can I submit a debt agreement proposal?
You may propose a debt agreement to your creditors under Part IX of the Bankruptcy Act if you:
- Are insolvent (unable to pay your debts as and when they fall due)
- Have unsecured debts, net assets and income below certain statutory limits
- Have not been bankrupt, entered into a debt agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years
What are the benefits to me?
If your proposal for a debt agreement is accepted by creditors:
- Your proposal provides for you to pay a set amount (which is often less than your total debts) in a lump sum, from the sale of your assets or by instalments over time, often from income.
- All of your provable unsecured debts are included in the debt agreement, even if not all creditors vote on your proposal.
- Unsecured creditors cannot take action against you to recover their debts.
- Interest does not accrue on your debts from the date you submit your proposal.
- You may retain your assets, continue trading your business or managing a corporation.
- You avoid most of the restrictions of bankruptcy.
- The process for proposing a debt agreement is reasonably straightforward and cost-effective to maximise the contributions available to your creditors.
- Subject to complying with the terms of your agreement, you are released from your provable unsecured debts and you are only required to pay the weekly, fortnightly or monthly contributions, or other amounts you agreed to pay under your proposal.
The benefits of a Part IX Debt Agreement, include avoiding bankruptcy and the restrictions to which a bankrupt is subject. A Part IX Debt Agreement also provides for the consolidation of a person’s debts such that the person is only required to make manageable payments to the administrator of the Part IX Debt Agreement and he or she is not required to make any further payments in respect of unsecured debts, such as credit cards and loans.
What do I need to be aware of if I propose a debt agreement?
There are considerations and consequences if you intend to propose a debt agreement as follows:
- When proposing a debt agreement you should consider what your creditors may accept, what you can afford to contribute and what would happen if your circumstances change. Generally a debt agreement will provide a better return to your creditors than bankruptcy.
- If you wish to retain your assets which are subject to security agreements eg. your car or home, you need to maintain payments under these agreements. If you do not the secured creditor may seize and sell the assets.
- If you enter into a debt agreement and you owe a debt jointly with another person, or someone has guaranteed your debt, they will still be liable and a creditor may pursue them for the debt.
- Debts for court-imposed fines and penalties, maintenance agreements and HELP are not included in your debt agreement. You will still remain liable for these debts.
- You are liable for all debts you incur after you enter a debt agreement.
- You will be subject to certain restrictions if applying for credit or trading a business.
- The will be a permanent record of your debt agreement on the National Personal Insolvency Index and it will be recorded for 5 years on your credit report.
- The cost of a debt agreement may be more than the full amount of the debts you owe.
- The terms of your debt agreement ultimately depend on what your creditors are prepared to accept.
- Proposing a debt agreement is an act of bankruptcy which, if your proposal is not accepted, creditors may use to bankrupt you.
What’s the debt agreement process?
If you are eligible to submit a debt agreement, we can assist you to formulate your proposal and complete the paper work required to lodge it with the Australian Financial Security Authority (AFSA). AFSA is the government agency responsible for the administration and regulation of the personal insolvency industry in Australia.
Once satisfied with your eligibility and the documents submitted with your debt agreement proposal, AFSA will send your proposal to creditors. Creditors then have 35 days to vote on your proposal by completing and returning a voting form. If the majority in value of creditors voting on your proposal vote in favour of it, your proposal is accepted. Even if you some of your creditors do not vote on your proposal, all of your unsecured creditors are bound by it.
When sufficient funds are contributed to your debt agreement, a dividend will be distributed to your creditors proportionally in respect of their debts. There are up-front costs associated with proposing a debt agreement. However, if your proposal for a debt agreement is accepted the ongoing administration costs are paid from the set amount you proposed.
Where do I go to propose a debt agreement?
If a debt agreement sounds like it may be the right option for you, or you would like further information about options available to deal with your debts, get in touch.
If you would like to read further about whether a debt agreement may be right for you, have a look at these sites: