If you can’t meet all your debts, then it’s safe to say you’re probably feeling worried, stressed, overwhelmed. You may even be concerned about how to avoid bankruptcy. Don’t worry – There are options to avoid bankruptcy and you’re definitely not alone. Debt Agreements are just one of those options and Life After Debt ® can help you with them too.
So, what is a Debt Agreement and how is it an option to avoid bankruptcy? We’re here to explain all this and more.
What is a Debt Agreement?
A Debt Agreement is a legally binding debt agreement taken from Part IX of the Bankruptcy Act (1966). As such, it is classified as an ‘Act of Bankruptcy’ however it is different to full Bankruptcy and does not have the same restrictions as Bankruptcy. This listing will be placed on your credit file and remain there for 5 years, or until the Debt Agreement is completed (whichever is longer). Your details will also be recorded on the Governments’ NPII register (National Personal Insolvency Index) for 5 years.
Crucially, a Part IX Debt Agreement can freeze all interest charges on your outstanding unsecured debts, extend these repayments over a longer period of time and see your creditors agreeing to receiving less than 100% of the debt due. In this way, A Debt Agreement can provide you with the means to repay your Creditors what you can afford without the long lasting impact of a Bankruptcy Petition.
Creditors might consider a Part IX debt agreement proposal where the debtor cannot meet all his/her commitments as and when they fall due for payment. This would frequently be due to a significant change in circumstances, e.g a period of unemployment, redundancy, ill health, overcommitment, additional expenditure for a financial dependent, etc. Your creditors will want to see a range of detailed financial information before they will accept any debt agreement.
How is it an option to avoid bankruptcy?
A Debt Agreement is basically a negotiated Payment Plan that, with Creditor’s consent, combines all your current unsecured debt repayments into just one regular payment, over an agreed time-frame. Once in place, you have legal protection from any further collection, recovery or legal action in respect of your unsecured debts. Whilst a Debt Agreement is in place, you cannot be made Bankrupt. When all the obligations have been completed, you are discharged from the associated debts.
What is the Debt Agreement Process?
- We gather all the required information from you and provide you with an overview of your position and options, so you don’t have to go it alone.
- We work with you to develop a household budget, ensuring you’re able to comfortably make repayments in the future.
- We contact your creditors to confirm all account details
- We draw up the Part 9 document in consultation with you. Once signed and completed it is then submitted to the AFSA (Australian Financial Security Authority) for processing.
- Your Creditors will have 5 weeks to consider and vote upon your offer and as long as the majority in dollar value agree to the Proposal then it is accepted and binding on all Creditors.
- Once approved, you will only be required to make the repayments you have previously outlined in the debt agreement for your unsecured liabilities.
- Providing you meet the terms of the agreement, your unsecured creditors cannot take any further action against you.
Who is eligible for a Debt Agreement?
To be eligible for a Debt Agreement in Australia you must be Insolvent and not have been bankrupt, had a previous Debt Agreement or Part X authority (Personal Insolvency Agreement) within the previous ten (10) years.
You must also meet the following criteria*:
- Income of less than $85,012.20 (after tax) pa
- Unsecured debts of less than $113,349.60
- Divisible assets (or equity in assets) available to creditors of less than $113,349.60
* Correct as at 20/03/2018
What does it cost?
You can lodge your own Debt Agreement using the forms located on AFSA’s website, however, many Creditors prefer that an independent professional insolvency practitioner has assessed your circumstances and will agree to act as the intermediary between you and your Creditors. Once a Debt Agreement is accepted, there are significant ongoing administrative functions which need to be completed and for a private individual these may be too complex.
AFSA Lodgement Fee: All Debt Agreement proposals (even if lodging yourself) incur a Lodgement Fee, currently $200, which must be paid to AFSA.
A Registered Debt Agreement Administrator may charge an Upfront Fee to cover pre-lodgement time and work. This will vary case-to-case depending on the amount of work and Creditors involved.
Once accepted, the Registered Debt Agreement Administrator would receive an Administration Fee. This amount is calculated as a percentage of your repayments and deducted from your contributions before Creditors receive them; in effect the Creditors are agreeing to ‘give up’ a portion of your repayment to the Administrator for their costs for the duration of the Agreement (usually an average of 4-5 years currently). The percentage is also determined on a case-by-case basis however an average is usually 20-25%. It is important to note that the Administration Fee is deducted from contributions, not on top of.
- Realisations Charge; AFSA receive a realisations charge which like the Administration Fee is deducted from your repayment contributions. This fee is 7% of all monies collected under the Debt Agreement and is remitted to AFSA.
So, you see, there are options to avoid bankruptcy and you really aren’t alone.
Life After Debt ® can help you with Debt Agreements from the start of the process, to the finish and all the way throughout. There is a list of eligible debts for a debt agreement too. To find out what these are, click here for further information. Or enquire about your own eligibility for a Debt Agreement and contact us today, for honest and sympathetic advice, without judgement.
Life After Debt ® is the business name of Australian Financial Solutions Pty Ltd – Registered Debt Agreement Administrator Number 1211.