A Debt Agreement is an agreement between you and your creditors made under Part IX of the Bankruptcy Act 1966.
A debt agreement is available to low-income earners who cannot pay all their debts but want to avoid going bankrupt. 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.
It is an alternative way to seek relief from a bankruptcy, and it provides a person with an informal type of administration by appointing a Debt Agreement Administrator (DAA).
The DAA will then prepare a debt agreement proposal to your creditors, which must identify:
- The debtor;
- The dollar amount of the offer;
- Provide information relating to your income, expenses, assets and liabilities;
- A statement of affairs.
Once a proposal for a debt agreement is provided, it is considered an act of bankruptcy for the purposes of a creditor’s petition for bankruptcy.
Am I eligible for a Debt Agreement?
Certain people are excluded from giving a proposal to creditors. These include:
- If you have been bankrupt at any point in the past 10 years;
- If you have unsecured debts which are greater than the threshold amount at the time;
- Your divisible property is greater in value than the threshold amount at that time;
- The debtor’s income, after tax, at the time of the proposal is likely to be more than half the threshold mark.
Once the proposal is made, it must be lodged with the Official Receiver within 14 days to be signed. The Official Receiver then sends the proposals to your creditors for their consideration, where they must vote on the proposal by returning the statement of claim form. If the majority of the votes accept the proposal, it becomes a formal Debt Agreement and all creditors will have to accept the terms of the agreement.
However, if it is not accepted, the creditors can then pursue the debtor and rely on the proposed debt agreement as an act of bankruptcy to apply to the Court to make you bankrupt.
What to consider before entering into a Debt Agreement
Entering into a Debt Agreement is an important decision with serious consequences.
You should ensure that you have proper legal and financial advice before entering into a Debt Agreement, and exhausted all the options available to you. These include speaking with your creditors to see if they could give you more time to pay, negotiate a payment plan or offer to pay a smaller lump sum amount to settle the debt.
If you would like to discuss what options available to you prior to entering into a Debt Agreement or would like advice on entering into a Debt Agreement, get in touch with us now to see how we can assist you.