A Debt Agreement Recommendation is a serious step towards your recovery. By now, you would have spoken to one of our case managers about your debt and shared your personal experience and circumstances with them. From the information you have provided, your case manager would have recommended a Debt Agreement as the best possible debt relief solution for you. So what now?
A Debt Agreement is not something you enter into lightly. It is an act of bankruptcy and as such, will have some long term consequences on your life. Below is a detailed summary of what a Debt Agreement involves so you can make an informed decision about how you would like to proceed.
Debt Agreements explained
A Debt Agreement is a legal and binding agreement between you and your creditors which includes a proposal of terms you can afford to repay the debt. A Debt Agreement could propose a reduced amount of the total debt owed, frozen interest, more time to repay the debt or even a reduced, lump sum payment to pay out the debt. If the creditors agree to your proposed terms, your agreement is processed through the governing authority known as the Australian Financial Security Authority (AFSA).A Debt Agreement is also referred to as Part IX of the Bankruptcy Act or a Part IX Agreement. It is an alternative to Bankruptcy for clients and their creditors.
How does it work?
Our Case Manager will help you complete an assessment form which details your income and debts to formulate a budget. This budget will identify any surplus income you are able to afford to repay your creditors. A proposal based on this amount is prepared by your Case Manager and forwarded to creditors for their consideration and vote. If it is accepted by the majority of the creditors, you will be able to commence payments for the agreed term.
Who is eligible?
There are certain guidelines and thresholds you must meet in order to be eligible:-
- No previous Bankruptcy, Debt Agreement or Part X of the Bankruptcy Act in the last 10 years
- Income after tax must be less than $80,480.40 net per annum, per applicant.
- Unsecured debts must be less than $107 307.20
(These thresholds are updated according to CPI, figures shown are current as at April 2015).
The benefits of a Debt Agreement
The benefits of entering into a Part IX Debt Agreement are many:-
- Avoid official Bankruptcy
- No limitations to lifestyle, currently or in the future
- Able to continue to improve financial well being
- Combine unsecured debts into one regular repayment
- Lower & more manageable repayments
- Debts are frozen upon approval of the Debt Agreement – no further interest is added to loans
- Repayments made to the Debt Agreement come directly off the principal outstanding
- Moratorium on repayments during the Debt Agreement application process
- No further calls, letters or harassment from creditors chasing payments
- One central contact point for liaison
- Debt Administrator negotiates terms of Debt Agreement on your behalf
- Not all creditors need to agree to proposal (majority agree or 50% of dollar amount)
The consequences of a Debt Agreement
If you fail to meet your obligations under the debt agreement by not making repayments on time and in full, the creditors are able to declare the agreement void and pursue all avenues for recovery. The Debt Agreement will also be noted on your credit file as it is a form of Bankruptcy. Your name will be listed on the National Personal Insolvency Index which can be accessed for a fee.
The Debt Agreement process
A Debt Agreement can take up to 90 days to implement from the initial meeting to approval. Your first Debt Agreement repayment should occur 30 days after approval. The following outlines a typical process you can expect should you decide to proceed with the Debt Agreement Assessment.
|Preliminary||Initial meeting with client includes assessing your current situation and preparing Debt Agreement Proposal.|
|Weeks 1-3||Your Debt Agreement proposal is completed and passed through compliance checks. It is then lodged with AFSA and you receive an assessment number which can be quoted to creditors or collection agencies.|
|Weeks 4-8||Your Debt Agreement Proposal is forwarded to your creditors who examine the new terms and negotiate with our Debt Agreement Administrator, Insolvency Administration Services towards an agreeable solution. Creditors then have 35 days to vote on the proposal.|
|Week 9||AFSA informs you of the voting outcome. If successful, your Debt Agreement commences. If unsuccessful, Insolvency Administration Services will renegotiate with your creditors and resubmit your application.|
|After Approval||Your first repayment will be made 30 days after approval and once a week thereafter until it has been repaid.|
Now you know what to expect from a Debt Agreement Proposal you can make an informed and educated decision about how to proceed. If you would like for your Case Manager to start the Debt Agreement procedure please call us now on 1800 00 3328. You can also get in touch with us if you have any questions or concerns about entering into a Part 9 Debt Agreement. You can find more information at our frequently asked questions page.