Debt Agreement

What is a Debt Agreement?

A Debt Agreement is a legally binding agreement with your creditors which must first be approved by them. Usually you pay an agreed regular sum for a period of 3 to 5 years and the interest on your debts is frozen at the time your agreement is accepted by your creditors. Your contributions are divided up between your creditors (less our fee which is approved by your creditors), who accept the sum in full and final settlement of the amount you owe them. In many cases this will be less than the total amount you currently owe and any difference will be written off. If you own your home or other assets you may choose to sell them or re-mortgage these assets and pay one lump sum in full and final settlement under your debt agreement.

Once your debt agreement is approved by your creditors, it will protect you against any further legal action which they may have been entitled to take against you, which may have resulted in your Bankruptcy.

So how much will I be required to pay under a Debt Agreement?

The regular payment you will make under your Debt Agreement will depend on your income and expenditure. We will help you assess what you can comfortably afford to repay towards your Debt Agreement. A direct debit will be set up to collect your agreed contribution under the Debt Agreement.

What sorts of people enter into Debt Agreements?

Anyone who has unsecured debts which they cannot repay as the debts fell due for payment is suitable for a Debt Agreement. If you cannot pay your debts as they fall due, you are insolvent and the law gives you two alternatives – Bankruptcy or a Debt Agreement. You cannot propose a Debt Agreement if:

• you have been a Bankrupt or entered a Debt Agreement within the last 10 years; or
• your unsecured debts exceed $88 379.20; or
• your assets that would be available under bankruptcy exceed $88 379.20; or
• your income for the next 12 months is expected to exceed $66 284.40 (after tax) or approximately $88,817 (before tax for Australian residents).

Are there any other options?

You can approach your creditors individually and ask them to reschedule your debts, but this may be difficult if you have a lot of creditors. Some banks and building societies have hardship assistance and we recommend that you approach them in the first instance before proposing a Debt Agreement. Bear in mind that unlike a Debt Agreement, an informal arrangement offers no guarantees as one or more of your creditors could change their mind at a later date, or charge you higher rates of interest later.

What are the advantages of a Debt Agreement?

• We help you to calculate what you can afford to repay and you make just one payment into your Administrators’ Debt Agreement account by a regular direct debit.
• Once your Debt Agreement is approved, all of your creditors are legally bound by its terms, so as long as you keep paying your agreed sums you will be protected from any creditor enforcement action.
• Once the agreed term of your Debt Agreement is over (usually after 3 to 5 years) you will have no further obligations to your creditors. At this point you stop paying the regular sum, and can start afresh.
• Your employment will probably not be affected. In fact, your employers will not know about your Debt Agreement unless you choose to tell them.

How to do apply for a Debt Agreement?

The first step is to call us on our toll free advice line or to apply on-line. We will take you through our Best Advice Model and will then advise you on the solution which best suits your financial circumstances. We recommend many solutions so we do not sell a Debt Agreement to every caller! We will always give you free and impartial advice. After you have supplied us with all of the necessary information we will prepare your Debt Agreement Proposal for you. After you have signed your Debt Agreement Proposal we will lodge it with the Insolvency and Trustee Service Australia who will send it to your creditors for voting.

Your creditors will vote on your Debt Agreement proposal by mail and you will not need to attend any meetings of creditors or speak to your creditors about the proposal. We will handle all negotiations with your creditors.

Will a Debt Agreement affect my credit rating?

Your Debt Agreement proposal will be recorded on the National Personal Insolvency Index register (forever). This register is maintained by the Insolvency and Trustee Service Australia. Your name will also be recorded on a commercial credit reference database for 7 years, after which time it will be deleted. Your credit is likely to be effected after entering into a Debt Agreement or you may be charged a higher rate of interest.

What else should I know before I apply for a Debt Agreement?

You might actually pay more under a Debt Agreement compared to if you were made Bankrupt. This is because you may not need to make income contributions if you were made bankrupt. To enquire if you would be liable to make compulsory income contributions please complete the information on the Bankruptcy Income Calculator.

Will my home be safe in a Debt Agreement?

You will not usually have to sell your property if your creditors accept your Debt Agreement Proposal (but you may need to release some equity in the property). If you choose to keep your house, you will of course need to keep your mortgage repayments up to date. Your house mortgage stands outside your Debt Agreement. If you were made bankrupt your Bankruptcy Trustee would need to take steps to sell the equity in the property, whether that be to your spouse or a third party.

What if my creditors don’t accept my proposal?

At least 50% of votes (in value) must be in favour of your Debt Agreement proposal.

If your creditors don’t vote in favour of your Debt Agreement Proposal you will still have the option of negotiating an informal arrangement with your creditors.

Who is Debt Free regulated by?

Our Debt Administrators are qualified Chartered Accountants and are members of the Institute of Chartered Accountants in Australia and the Insolvency Practitioners Association of Australia. The Insolvency and Trustee Service Australia also regularly monitors and audits our Debt Agreements for strict compliance with the bankruptcy Act.