Debt Agreement
If you are in debt then a debt agreement may be an option for you.
A debt agreement is a simple method for you to enter into a legally binding agreement with your creditors.
Debt agreements are negotiated compromises with your creditors.
Some examples of the kinds of proposals put in place are:
- A payment of less than the full amount of all or any of your debts.
- A moratorium on payment of your debts.
- A transfer of property from you to one or more of your creditors in full or part payment.
Who can enter into a debt agreement
A debt agreement can be proposed by you if you -
- Have not been bankrupt, utilised a debt agreement or given an
authority under Part X of the Bankruptcy Act in the last 10 years; - Have an after tax income of less than about $56,306.25 per annum;
- Have unsecured debts of less than about $75,075.00
- Are insolvent
What does insolvent mean?
A person is insolvent if and only if they cannot pay all their debts as and when they fall due.
Is a debt agreement the same as going bankrupt?
No, a debt agreement is an alternative to bankruptcy. However by submitting a debt agreement proposal you are committing “an act of bankruptcy”.
What does a debt agreement do?
A debt agreement freezes provable unsecured debts upon acceptance of your debt agreement proposal by creditors. This allows you to pay back the debts over an extended period of time at an amount per week you can afford.
What is a provable unsecured debt?
Examples of unsecured debts are medical bills, store cards, credit cards and some personal loans.
Do all creditors have to agree to my proposal?
No, not all creditors have to agree. The majority in number and at least 75% of the dollar amount of those creditors who decide to vote, and are entitled to vote, have to agree to your proposal.
What if an unsecured creditor does not vote or decides to vote against my proposal?
As long as the majority in number and at least 75% of the dollar amount of those creditors who decide to vote, and are entitled to vote, accept the proposal then it is legally binding on all creditors.
Can you guarantee that my creditors will accept my debt agreement proposal?
No. It is your creditors who decide whether they accept or reject your proposal. However as a debtor your responsibility is to make full and complete disclosure of your financial position; put forward the best offer your can and commit to complying with the terms of the proposal.
Will I be able to make one payment per week to all my unsecured creditors?
Yes, set up a weekly payment system by way of direct bank debit.
Will a Debt Agreement affect my credit rating?
Both the debt agreement proposal and the debt agreement are registered on the National Personal Insolvency Index (NPII).The credit-reporting agency uses the information on the NPII to advise any creditors that you are under a debt agreement and/or have submitted a debt agreement.
A creditor can also register a default against your name.
What is ITSA?
ITSA stands for Insolvency and Trustee Service Australia. It is a government department responsible for reviewing your proposal to creditors and the registration and facilitation of debt agreements.Different country/states have similar set ups.
Does ITSA have to accept my proposal?
No. ITSA may reject your proposal for processing if they think it is not in the best interest of your creditors, or if you are ineligible to submit a debt agreement proposal.
How long does it take?
Once ITSA has accepted your debt agreement proposal for processing, creditors may vote to either accept or reject your proposal within 25 working days.
What are the important dates?
The Processing Date: This is the date ITSA accepts your debt agreement for processing; and the Deadline Date: This is the date by which creditors may vote to either accept or reject your proposal. It is 25 working days from the Processing Date to the Deadline Date.
Between the date ITSA accepts my Debt Agreement for processing and the deadline date, do I pay my unsecured creditors?
You may continue to pay your unsecured creditors, however, you are under no obligation to do so. You must continue to pay your secured creditors which you have excluded from your proposal (e.g. house mortgage and car lease).
How does the process work?
If you are eligible to submit a debt agreement proposal then getl help with your paper work. Once it is completed then submit all your paper work to ITSA. ITSA will process your proposal after they have assessed it; that is they have determined that you are insolvent; that the proposal is in the creditors best interest; that you are eligible to submit a proposal; that your income, assets and liabilities are within the threshold limits and that all documentation is complete.
ITSA then writes to your creditors advising of your proposal.
Should I continue to talk with my creditors?
Yes. Your relationship with your creditors is important and by talking with them you can explain to them your situation and ask them to support your debt agreement proposal.
You may also forward their contact details to us and we will talk with them on your behalf.
What happens if my Debt Agreement proposal is accepted by my creditors?
You are released from all provable debts and your creditors cannot take any further legal action against you.
The debt agreement ends when your obligations under the proposal are satisfied.
What happens if my creditors reject my Debt Agreement proposal?
Should creditors reject your proposal then we MAY be able to resubmit. However this will depend on your creditors and the reasons why they rejected your proposal. Should this happen we will contact you to work out a solution.
