A popular settlement option for unsecured debt (e.g. credit card bills, hospital bills) is through a debt agreement.  It is a legally binding agreement which allows a debtor to negotiate with their creditors for repayment of their debt over a period of three to five years.  It is managed under Part IX of the Bankruptcy Act in Australia; therefore, it is also known as Part IX (9) Arrangement. This agreement gives debtors respite to pay their debt with relative ease while maintaining a reasonable standard of living.

Who is Eligible for Debt Agreement?
This option is not for everybody; only the people who have unsecured debts and are insolvent, can enter into such an agreement.  There are specific statutory thresholds that need to be met in order for a person to be eligible for Debt Agreement.  The statutory limits are:

• Unsecured debts of < $92,037.40; and
• Net annual income < $69,028.55
• You have not filed for bankruptcy before
• You have not entered into a debt agreement previously

These figures are indexed and change each year.

Benefits of a Debt Agreement
The primary benefits of debt agreement are:

• Consolidation of various debts into one convenient monthly payment
• All charges and interest on debt are typically frozen
• Debtor does not have to deal directly with the creditors. Instead, a debt management company deals with them on behalf of the creditor
• The effect on your credit report is less severe than bankruptcy

Disadvantages of a Debt Agreement
The main disadvantage is that the debt agreement will be listed on credit listings for a period of seven years and the debtor will be listed on the National Personal Insolvency Index.

What is a Debt Agreement Proposal?
It is the formal proposal for debt repayment made to The Insolvency and Trustee Service Australia (ITSA).  If ITSA accepts the proposal, it is submitted to the creditors and they are given 35 days to vote on the proposal. It is not necessary for each and every creditor to accept the proposal.  If majority of the creditors accept the proposal, it becomes legally binding.

Normally, the proposal is formulated with the help of an appointed Registered Debt Agreement Administrator. You are not required to appoint an administrator but it is strongly recommended. When choosing an administrator, make sure that the person you choose for the job is registered with ITSA as a debt agreement administrator.  These are examples of the terms that may be put forth in a proposal:

• Propose to pay an amount less than the total amount of one of the debts or all debts combined
• Request a waiting period on the payment of debts
• Offer to settle the debt in part or full through an asset or property

What is the Cost of a Debt Agreement?
Two types of fees are typically charged by Debt Agreement Administrators:

Set up fees: This is charged by the administrator for preparation of the Debt Agreement Proposal.  It can be paid before or after the submission of the proposal to ITSA.  It can also be paid in installments, with a portion of the fee before submission of the proposal and the remainder after the submission.

Administration fees: Once the Debt agreement Proposal is submitted and accepted, the administrator charges a percentage of your payments as the fee for administration of the agreement and for making payments to the creditors.

Point to Remember
A Debt Agreement Proposal is based on repayment of debt by using the excess amount from your household budget.  Therefore, it is very important to ensure that your budget including the income and expenditure is realistic and sustainable because if it isn’t, then could land yourself in much deeper trouble than before.  It is the duty of the administrator to certify that the debtor has submitted all of the necessary information and the proposal is sustainable.

What happens if I can’t make the payments?
If you do not make payments according to the schedule, your agreement may be terminated by the administrator or the creditors.  Therefore, if you are unable to make payments, contact your administrator as soon as possible so that they can find an early solution to your problem.

If you would like to find out more about how a debt agreement could assist you to take back control of your debts. Then call us on 1300 308 497 for an obligation free consultation or fill out the short contact form.