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Debt Agreement FAQ

Q.

What is a Debt Agreement?

A.

A Debt Agreement is a legally binding agreement between you and your creditors outlining a new repayment arrangement – one which you can afford. Part 9 Debt Agreements are legislated under the Bankruptcy Act 1966 and provide an affordable, safe way to repay your debts.

Debt Rescue will approach your creditors with a Debt Agreement proposal and let them know how much you can afford towards your debts per month. Your creditors must vote on the proposal and if accepted, you may only have to repay a small percentage of each dollar you owe. This drastically reduces your debt amount, making them more affordable.

Q.

When should I consider a Debt Agreement?

A.

If you’re struggling with unmanageable debts you can’t repay, a Debt Agreement may be a suitable option. Many people turn to Bankruptcy when they’re struggling with debt. While Bankruptcy is an option that can clear your debt and provide a fresh start, it’s not the only option and does come with restrictions and consequences. A Debt Agreement, on the other hand, has no life-long affects and is a viable alternative to Bankruptcy.

Q.

What should I do prior to entering a Debt Agreement?

A.

Speaking to your lender/s about your financial position is always the first step you should take to try and settle your debts outside of a Debt Agreement. Have you spoken to your lender/s about financial hardship and asked them for more time to settle your debt? Have you attempted to discuss a repayment plan?

Q.

What are the Debt Agreement eligibility criteria?

A.

You can be eligible for a Part 9 Debt Agreement if you:

  • Aren't able to pay your debts when they fall due,
  • Haven't been Bankrupt, had a Debt Agreement or Personal Insolvency Agreement in the last 10 years,
  • Have unsecured debts and assets less than the current threshold amount ($115,733.80 for debts and $231,467.60 for assets), and
  • Your after-tax income for the next 12 months is less than the current threshold amount ($86,800.35).

One of our friendly Case Managers can discuss your situation with you and help you work out if you’re eligible for a Debt Agreement

Q.

Will I lose my home if I enter a Debt Agreement?

A.

No. A Debt Agreement has no impact on your mortgage. In fact, a Debt Agreement will improve your cashflow and make it easier for you to afford mortgage repayments. The only way you could lose your home is if you stop making mortgage repayments. The bank would then be within their rights to repossess your house.

Q.

Can I get a loan while in a Debt Agreement?

A.

There is no law against you applying for finance of any kind, including home loans, during your Debt Agreement. However, it will be extremely difficult for you to be found eligible for finance until you have completed your Debt Agreement.

Q.

Can I still enter a Debt Agreement if I receive Centrelink payments?

A.

Provided you can afford the regular Debt Agreement repayment amount, you may still enter a Debt Agreement while receiving Centrelink Benefits or Pension Payments.

Q.

Is a Debt Agreement the same as declaring bankruptcy?

A.

No. A Debt Agreement is not a form of Bankruptcy, or even a partial Bankruptcy. While insolvency is one of the qualifying criteria and it is a part of the Bankruptcy Act, it’s available for those who don’t want to go Bankrupt and want to settle their debts as an alternative.

Q.

What are the alternatives to a Debt Agreement?

A.

There are other debt relief solutions avaliable to you, depending on your individual circumstances. You can also consider:

The Debt Agreement Process

Q.

What is the process involved in entering a Debt Agreement?

A.

When you engage us at Debt Rescue, we take over all communication with your creditors and negotiate with them on your behalf. Once creditors have accepted the agreement, you will make your negotiated repayment to us, instead of paying the individual creditors. Once you’ve completed the payments and the agreement ends, your unsecured creditors are unable to try and recovery the rest of the money that was originally owed.

Q.

What debts can be included in a Debt Agreement?

A.

A Debt Agreement covers most unsecured debts, such as:

  • Credit and store cards,
  • Unsecured personal loans and payday loans,
  • Utility bills such as gas, electricity, phone and internet (disconnected supplies or from a previous address you occupied),
  • Overdrawn bank accounts and unpaid rent, and
  • Medical, legal and accounting fees.

In some cases, in a Debt Agreement you may be liable to pay:

  • Fines from the court,
  • Student loans such as HECS, HELP and SFSS,
  • Traffic infringement fines,
  • Council fines,
  • Council rates (if you still own the property),
  • Debts incurred through crime, and
  • Debts incurred after the date of your Debt Agreement proposal.

You may need to confirm with your creditor to see if they can still pursue you for:

  • Debts you incur by fraud (Centrelink debts),
  • Child support debts (arrears may be included but not ongoing obligations),
  • Fines, penalties and court-ordered payments, and
  • Overseas debts.
Q.

How long does a Debt Agreement last?

A.

While the specific terms and conditions of each Debt Agreement are unique to the individuals and lenders involved, in general, a Debt Agreement lasts for three years. If you own your home, you can extend the length of a Debt Agreement to be up to five years.

Q.

What are the consequences of a Debt Agreement?

A.

Although entering a Debt Agreement has benefits, as with all debt relief solutions it also comes with consequences to be aware of.

  • The Debt Agreement will be recorded on your credit file for a minimum of five years,
  • Your name will be listed on the National Personal Insolvency Index (NPII) for five years,,
  • Entering a Debt Agreement is considered an Act of Bankruptcy, and
  • You’ll need to disclose to creditors you are in a Debt Agreement when you apply for credit over the credit limit ($5,812).
Q.

What are the benefits of a Debt Agreement?

A.

A Debt Agreement can:

  • Pause all interest and fees on unsecred debts,
  • Prevent further legal action against your unsecured debts,
  • Enable you to be released from your unsecured debt once the agreed payments have been made,
  • Enable you to consolidate your debts into one, affordable payment based on your budget, and
  • Help you avoid the consequences of Bankruptcy.
Q.

Will a Debt Agreement affect my credit score?

A.

Yes, but not permanently. A Debt Agreement will be listed on your credit file for a period of five years. During the agreement, your name will also be on the National Personal Insolvency Index (NPII). This may make it difficult to obtain further credit while you’re in a Debt Agreement. However, at the end of the agreement, your name will no longer appear on the NPII and the agreement will be taken off your credit file.

You can improve your credit score quite quickly once the agreement is over by ensuring you repay your debts in full and on time.

Payments Under a Debt Agreement

Q.

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

A.

One of the unique advantages of a Debt Agreement is that it will allow you to make regular payments that you can afford. The amount is typically related to how much you make and how much you need to spend per month. In other words, you will not be asked to take on more than you can handle with a Debt Agreement; they are designed to help you get out of debt rather than trap you further into debt.

Q.

How do I make repayments on a Debt Agreement?

A.

A direct debit will be set up in a Trust Account so your agreed contribution can be submitted under the terms and conditions of the Debt Agreement.

Q.

Can I repay the Debt Agreement early?

A.

Yes, you can repay your Debt Agreement early with no penalty. However, it still remains as a default on your credit file for five years.

Q.

What happens if you cannot make payments part-way through the Debt Agreement?

A.

A Debt Agreement is a legally binding debt solution. As a result, if you are unable to honour the terms and conditions that you originally signed up for, your creditors may terminate the Debt Agreement and you might be forced into Bankruptcy.

At Debt Rescue, we understand that people’s circumstances can and do change. If you find yourself in a situation where you have trouble keeping up with the payments of the Debt Agreement, the administrator may suggest variations to your Debt Agreement. The suggested changes will need to be voted on by creditors in the same way that the terms and conditions of your original Debt Agreement proposal were created.

If your changes are approved, then you’ll have a new legally binding debt solution that may make it easier for you to keep up with your repayment schedule.

Q.

Are joint debts included in a Debt Agreement?

A.

Yes. Joint debts may be included in a Debt Agreement. It is best to figure out how the other holder of joint debts plans on dealing with these debts before proceeding. The creditor may choose to pursue the other joint holder to resume the repayments lost through a Debt Agreement.

Q.

Will a Debt Agreement affect my credit score?

A.

Yes, but not permanently. A Debt Agreement will be listed on your credit file for a period of five years. During the agreement, your name will also be on the National Personal Insolvency Index (NPII). This may make it difficult to obtain further credit while you’re in a Debt Agreement. However, at the end of the agreement, your name will no longer appear on the NPII and the agreement will be taken off your credit file.

You can improve your credit score quite quickly once the agreement is over by ensuring you repay your debts in full and on time.

Debt Agreements and Creditors

Q.

What happens to my creditors in a Debt Agreement?

A.

It is essential to maintain a positive relationship with your creditors throughout the Debt Agreement voting period. Once your Debt Agreement proposal has been lodged, your creditors are required to vote in order to accept or reject the proposal. The voting period lasts for generally five weeks and there must be a majority creditor vote for the Debt Agreement proposal to be accepted.

Q.

What happens if creditors reject a Debt Agreement proposal?

A.

If your Debt Agreement is rejected, you can re-submit a new proposal. If new information becomes known or there are added benefits for creditors, they may be willing to consider a new proposal. If your Debt Agreement proposal is rejected:

  • You and your creditors will be notified in writing, and
  • If your debt is over $5,000, your creditors can apply to make you bankrupt
Q.

Do all creditors have to agree to my Debt Agreement proposal?

A.

No, not all creditors have to agree. The majority in value, i.e., 50.01% of the dollar amount of those creditors who decide to vote, and are entitled to vote, have to agree to your proposal. A creditor may reject your proposal on the following grounds:

  • Failure to disclose all of your debts,
  • Failure to advise that a debt is a joint debt,
  • A debt has a guarantor,
  • A debt is secured/unsecured, or
  • Failure to disclose the correct debt level.
Q.

While applying for a Debt Agreement, Can I still pay unsecured creditors?

A.

Yes, but it is advised by Debt Rescue that you don’t. Instead of paying your creditors directly, you pay us and then we pay your creditors through the terms of the Debt Agreement. In other words, they will receive dividend payments from Debt Rescue as scheduled by your proposal.

Q.

What do I tell my creditors when they call me?

A.

“I am struggling with my finances and can’t afford to make repayments. I have contacted Debt Rescue to provide a solution to all my debts. They have authority to talk on my behalf on all my accounts. Please feel free to contact them on 1800 003 328. Thank you for your call.”

Once your engagement is finalised, written authority is provided to your creditors. If contacted, please collect the creditor’s name, contact number and order reference number to tell your Case Manager. Once you have entered the Debt Agreement, quoting your Debt Agreement reference number will confirm your Debt Agreement status and ensure further contact with your creditors stops.

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