Debt Management Plan FAQs
What is a Debt Management Plan?
Exclusive to Debt Rescue, a Debt Management Plan (DMP) is designed to help if you’re struggling to pay down your debts. Its aim is to reduce your overall outstanding debt amounts by combining them into one, easy to manage repayment amount based on your budget.
In order to qualify for a Debt Management Plan, you must:
- Be insolvent, and
- Not have not been bankrupt or entered into a formal Part 9 Debt Agreement in the last 10 years.
A Debt Management Plan can take the form of a formal Part 9 Debt Agreement, an Informal Debtstroyer Agreement or a Debt Settlement.
What is insolvency?
You are considered insolvent if you can’t afford to repay your debts if and when they fall due.
How do I qualify for a Debt Management Plan?
In order to qualify for a Debt Management Plan, all you have to do is be experiencing financial hardship. In other words, you just need to be struggling to meet your creditor repayments as they fall due. In most cases, serious financial hardship is due to a negative life shock that leads to over indebtedness such as a job loss or redundancy, a relationship breakdown, bereavement or being diagnosed with an illness or disability.
There are no restrictions on the amount of debt you owe, value in assets you have or income you earn. These factors only play a role in the type of Debt Management Plan recommended for your situation as a Debt Management Plan can be tailored for anyone struggling with debt.
I’m only on Centrelink payments, am I still eligible?
The short answer is yes, anyone able to offer a return to their creditors is eligible provided you have capacity to sufficiently cover your living expenses. However, we would suggest those on long-term Centrelink payments (e.g. Disability Support Pension, Single Parenting Payments, etc.) should strongly consider alternate options to a Debt Management Plan to ensure any unnecessary financial hardship is avoided. One of those options is recommending you to see a free financial counsellor.
What affect does a Debt Management Plan have on my debts?
When engaging us for a Debt Management Plan, the interest and fees on all of your unsecured debts will be paused. This allows you to repay your debts over a specific term, between 3 to 7 years, with one easy-to-manage repayment based on your budget and affordability. After successfully completing the terms of the formal Debt Agreement or Informal Debtstroyer Agreement, you will be debt free and will have only paid approximately 65-70% of your outstanding debt amount.
Will a Debt Management Plan affect my credit rating?
A Debt Management Plan may affect your credit file depending on if it’s a formal Part 9 Debt Agreement or Debtstroyer Agreement. A formal Part 9 Debt Agreement will be listed on your credit file for 5 years.
Under the new positive credit reporting regime, if you miss a creditor repayment, your credit rating may be affected to some degree.
Can I travel overseas?
There are no restrictions on travel when entering into a Debt Management Plan. Repaying your debts affordably is an alternative option to Bankruptcy, which does place restrictions on travel.
What are the consequences of a Debt Management Plan?
- A formal Part 9 Debt Agreement will be listed on your credit file and on the National Personal Insolvency Index (NPII) for five years.
- It may be difficult to access further finance while in a formal Part 9 Debt Agreement.
- A formal Part 9 Debt Agreement has eligibility restrictions and limits , as outlined by AFSA.
- There are set limits to the amount of debts that can be included in a formal Part 9 Debt Agreement.
- An informal Debtstroyer Agreement is a private agreement and is not regulated under the Bankruptcy Act. If you stop meeting your repayments at any given time, the agreement may be cancelled and creditors are then allowed to harass you for payment.
What are the benefits of a Debt Management Plan?
- A Debt Management Plan avoids the serious consequences of bankruptcy.
- Allows you to have greater control over your finances as your debts will be consolidated into one, affordable payment based on your budget.
- Puts a stop to creditor harassment.
- If an Informal Debtstroyer Agreement is the recommended solution for you under the Debt Management Plan, it will not affect your credit file.
- You can be debt free in just 3 years.
- You will get to keep your home and assets and there are no restrictions on travelling overseas.
The Debt Management Plan Process
How does a Debt Management Plan work?
Once you engage us for help, one of our experienced debt specialists will speak with you in a free, no obligation consultation to understand your financial situation and how you have come to be in financial distress.
Assessment and paperwork
We then collect the assessment fee while preparing your creditor proposals to ensure the fee amount is easy to manage and display that the estimated repayment amount will be affordable for you. Once we have received your first payment and supporting documents, you will be assigned a Case Manager on our Debt Management Team and begin the assessment period. Your Case Manager will request some information from you, allowing our Letter of Authority to be sent to your creditors letting them know we are now acting on your behalf.
Debt Management Plan recommendation
Once the Assessment period is complete, your Case Manager will discuss and recommened one of our Debt Management Plan options. This may be a formal Part 9 Debt Agreement, an Informal Agreement or a Debt Settlement, depending on what is suitable for your specific circumstances. As a result, you can rest assured the recommended solution will put you in a stronger position financially and alleviate the stress of your current situation.
What debts can be included in a Debt Management Plan?
Most debts can be included in your Debt Management Plan. Our core service is to prioritise secured creditor payments and protect assets, before addressing unsecured debts on your behalf to reduce/pause interest and repay them affordably. In some cases, our team can negotiate repayment arrangements with mortgages, car loans or other secured credit providers to help resolve your financial difficulty.
There are some restrictions on what debts can be included in a formal Debt Agreement.
Can I include fines in a Debt Management Plan?
Generally, fines are not included in a Debt Management Plan. You will be required to repay these debts outside of the Debt Management Plan
What happens if I have joint debt?
Depending on your recommended solution under the Debt Management Plan, your joint debts may need to be included. Under a formal Part 9 Debt Agreement, all of your joint debt/s must be included. However, the co-borrower will continue to be liable for the entirety of the debt/s.
What happens if I have a debt guaranteed by someone else?
Again, depending on the best solution recommended for your situation under the Debt Management Plan, the guaranteed debt must be included in a formal Part 9 Debt Agreement. Even though this is the case, the guarantor will not be released from the stop and when you stop paying the creditor, they are likely to pursue the person under the guarantee.
What do I have to do under a Debt Management Plan?
Provide required documents
You will need to provide the information your Case Manager requests and make sure it is correct. This includes (where applicable):
- Photo ID
- Pay slips (2 most recent)
- All debt statements
- Bank statements (debited account)
- Centrelink statements
- Child support statements
- Tax return
Read and sign paperwork
Under a Debt Management Plan, you will be required to read and sign several documents. For a formal Part 9 Debt Agreement, these are legally binding documents that come with penalties under the Bankruptcy Act and Criminal Code if you provide false or misleading information. You should read each document carefully so you are well informed before you sign. An Informal Debtstroyer Agreement does not hold these serious penalties, however, it is still required that all information you provide is truthful and relevant to your situation.
My circumstances have changed, what should I do?
You need to inform your Case Manager immediately if your circumstances change at any stage during the Debt Management Plan process.
If you wish to proceed with a Debt Management Plan, please get in touch with us at Debt Rescue and one of our friendly consultants can work with you to understand the process and what’s involved for your individual situation. Call us today on 1800 560 575 for a free consultation.
AFSA and Creditors Role Under a Debt Management Plan
Who is AFSA?
AFSA stands for the Australian Financial Security Authority . AFSA is Australia’s Federal Government regulatory body responsible for the administration of the personal insolvency system in Australia.
What is AFSA’s role in my Debt Management Plan?
If a Formal Part 9 Debt Agreement is determined as the most suitable solution for you under a Debt Management Plan, our team will be preparing and administering your Debt Agreement Proposal in compliance with AFSA guidelines. During your Debt Agreement, AFSA will continue to monitor, audit and correspond with us as your Debt Agreement Administrator. More info on AFSA’s role can be found here.
What happens to my creditors during a Debt Management Plan?
Once you have made your first payment towards your recommended debt relief solution under the Debt Management Plan, we will send a Letter of Authority to your creditors allowing us to take over communication with them and act on your behalf. From this point on, your Case Manager will deal with all creditor contact to make the process easier for you.
Should I still talk with my creditors?
We advise our clients to keep up communication with their creditors as explaining your situation and asking them for their support during this difficult time may increase your chances of creditors accepting your formal Part 9 Debt Agreement proposal or Informal Debtstroyer Agreement negotiations. However, you can also forward your creditor contact details to us and we are happy to talk to them on your behalf.
My creditors are still harassing me, what do I tell them?
We suggest you say something similar to this to your creditors:
“I am struggling with my finances and can’t afford to make repayments. I am speaking with Lanyana Financial Group for assistance, they have authority on my accounts and will contact you shortly.”
Please also note the creditor’s name, reference number and amount owing. This allows your Case Manager to promptly stop any further contact.