Debt agreements are available to low income earners who cannot pay everything they owe, but want to avoid going bankrupt. Debt agreements have serious long term consequences that may affect your career or your ability to obtain credit in the future.
You should only consider a debt agreement if you have explored all other options. If you are thinking about getting a debt agreement make sure you understand exactly what you are agreeing to and the effect it can have on your ability to obtain credit in the future.
A debt agreement is a binding agreement between you and your creditors and falls under Part IX of the Bankruptcy Act 1966.
Under a Part IX debt agreement, your creditors agree to accept an amount of money that you can afford to pay, over a set period of time, to settle your debts.
Once you have paid this money your creditors cannot recover the rest of the money you owe.
A debt agreement is not a consolidation loan or an informal arrangement with your creditors.
How a debt agreement works
If you meet the eligibility criteria, a debt agreement administrator will help you prepare a debt agreement proposal, based on what you can afford to repay. The eligibility criteria are on the Australian Financial Security Authority’s website.
The proposal will be sent to each of your creditors and they can vote to accept or reject your proposal. If the majority of creditors accept your proposal then the debt agreement will start and all creditors will have to accept the terms of the agreement.
All creditors will receive the same proportion of the amount you owe. For example, if you propose to repay 90% of all your outstanding debts over a 5-year period, then all creditors will get 90% of what you owe them.
Proposing a debt agreement is a serious step. It is an act of bankruptcy and if the debt agreement is not accepted by your creditors they can use the proposal to apply to the court to make you bankrupt.
The Australian Financial Security Authority or AFSA is the government agency responsible for the oversight of bankruptcy and insolvency in Australia please click on the following link for more information published on their website: