Debt Agreements – solving personal debt problems (Updated 2024)
A Debt Agreement, sometimes known as a Part 9 Debt Agreement, is a legally binding agreement between a person (not a company) and their creditors designed to help a person that can’t pay all of their debts. With a Debt Agreement you can get creditors, including the ATO, to agree to a “haircut” on your debt and you can make arrangements to pay what you can reasonably afford over period of time. Read on to learn more.
- What is a Debt Agreement?
- Can a Debt Agreement help me a tax debt?
- Does the ATO consider debt agreement proposals on their merit?
- If my personal tax debt arose due to a director penalty notice will the ATO consider a debt agreement proposal?
- Does a Debt Agreement apply to all of my creditors or just the ATO?
- What are the eligibility criteria for a Debt Agreement?
- Can I include secured debts in the agreement?
- Can I do a Debt Agreement myself or do I need help?
- What is the difference between a Debt Agreement and bankruptcy?
- Can I apply for a loan during my Part 9 Debt Agreement?
- If I can only do a Debt Agreement if I am insolvent, what does that mean?
- What is the process of a Debt Agreement?
- What debts can I include in a debt agreement?
- Can I include my fines in the debt agreement?
- What happens with joint debt?
- What happens if someone else has guaranteed my debt?
- What is AFSA and what do they do?
- What are the relevant dates during a Debt Agreement?
- Do all my creditors have the right to vote?
- Do all creditors have to agree to my proposal?
- What happens if the Debt Agreement proposal is not accepted by creditors?
What is a Debt Agreement?
A Debt Agreement is one of the options available under the Bankruptcy Act to help a person that can’t pay all of their debts a. In general terms with a Debt Agreement:
– You appoint a person known as a Registered Debt Agreement Administrator (RDAA) to help you negotiate to pay a percentage of your debt that you can afford over a period of time.
– You make repayments to your RDAA, rather than making individual payments to your creditors.
– After you complete the payments and the agreement ends, your creditors can’t recover the rest of the money you owe.
Is it that simple – no! There is a lot to consider. Whist you get the advantage of getting a “haircut” from your creditors, there are some consequences which will affect you. A Debt Agreement may affect your ability to get credit and will appear on a public register for some time. And it’s not available to everyone – there are limits to the amount of debt and income you can have to be eligible.
Can a Debt Agreement help me resolve a tax debt?
Yes, in some cases. A Debt Agreement is a binding agreement between you and your creditors and so that can include the ATO. In fact, the ATO is very commercial in considering whether to accept a proposal under a Debt Agreement. The ATO likes to assist people that have unmanageable debt.
Does the ATO consider debt agreement proposals on their merit?
Yes, the ATO does consider Debt Agreement proposals on their merit. However, the ATO will want information from your RDAA so it can properly assess if a proposal is reasonable.
If my personal tax debt arose due to a director penalty notice will the ATO consider a debt agreement proposal?
Yes, the ATO will still consider a Debt Agreement proposal for a personal tax debt that arose due to a Director Penalty Notice (DPN).
Does a Debt Agreement apply to all of my creditors or just the ATO?
A Debt Agreement is proposed to all of your creditors. They all then get to Vote on whether to accept the proposal, or not. If a majority in value votes in favour of the proposal, then the Debt Agreement is binding on all creditors, even those that voted No.
What are the eligibility criteria for a Debt Agreement?
The eligibility requirements for a Debt Agreement change over time (the numbers slowly increase). As a guide, the criteria are:
- You’re insolvent – that is, you are not able to pay your debts when they are due.
- You have not entered into a debt agreement or declared bankruptcy in the last 10 years.
- Your total unsecured debt is less than $133,278.
- Your after-tax income is less than $99,958.
- The value of your property is less than $266,557.
Can I include secured debts in the agreement?
No. If you have secured debts such as a motor vehicle loan or a home loan, those debts are not included in a Debt Agreement. In practice, this means that if you have a home mortgage or a car loan, and continue to repay them, your assets are not at risk. If you default on those payments, the lender can repossess your assets.
Can I do a Debt Agreement myself or do I need help?
No. you can’t do it by yourself. To enter into a Debt Agreement, you need to appoint a Registered Debt Agreement Administrator. The RDAA will run the process for you.
What is the difference between a Debt Agreement and bankruptcy?
Debt Agreements and Bankruptcy are both formal legal options available under the Bankruptcy Act. But they are very different things:
- Bankruptcy is a legal status for individuals who are insolvent. Bankruptcy has serious long-term consequences. The Trustee in Bankruptcy will collect many of your assets (there are specific things the Trustee cannot collect). Bankruptcy lasts for three years, stays on your credit report for five years, and your name is entered on the National Personal Insolvency Index permanently. There are restrictions on you for those three years: you must ask your trustee for permission to travel overseas; you can’t be a director of a company without court permission; it will affect your ability to work in certain trades or professions.
- A Debt Agreement is a formal alternative to bankruptcy designed to avoid some of the disadvantages of bankruptcy. It’s an agreement between you and your creditors where you negotiate to pay a percentage of your combined debt that you can afford over a period. Once you’ve paid the agreed amount, those debts are settled in full. So, you can be in and out of a Debt Agreement quite quickly.
Can I apply for a loan during my Part 9 Debt Agreement?
Yes, you can apply for a loan whilst in a Debt Agreement, but it may be difficult to get approval. You must disclose the Debt Agreement to the proposed lender, and that it will make it more difficult to get approval.
If I can only do a Debt Agreement if I am insolvent, what does that mean?
“Insolvent” is a legal term used to describe a financial state where an individual is unable to meet pay their debts as they become due.
What is the process of a Debt Agreement?
The process of a Debt Agreement will be run and controlled by your Debt Agreement Administrator, so you don’t need to understand all of the details. But for simplicity’s sake it can be broken down into the following phases:
- Information Gathering. If you are eligible to submit a proposal, the Debt Agreement Administrator will ask for information and help you complete the relevant paperwork. They will also provide you with information brochures and documents. The sorts of information you’d need to provide to the RDAA include: your current payslips, bank statements, proof of rent or mortgage payments.
- Documentation & Lodgement. When the paperwork is drafted by your RDAA, you must read it, sign it, and send it back. The RDAA will then submit it to the Australian Financial Security Authority (AFSA). Your paperwork is submitted to AFSA within 14 days of you signing it. AFSA will process your proposal after they have assessed it, checked your eligibility, and determined that all the documentation is complete.
- Negotiation & Agreement. Your RDAA will submit a proposal to your creditors for you to pay a percentage of your combined debt that you can afford over a period of time. That offer could be a one-off payment or could be a specific amount per month for a number of years.
- Payment. You make your payments to your RDAA rather than individual payments to your creditors. After you complete the payments and the agreement ends, your creditors can’t recover the rest of the money you owe.
What debts can I include in a debt agreement?
You can include the following types of debts in a Debt Agreement:
- Unsecured Debts – which are debts like credit cards, personal loans, and lines of credit.
- Store Cards.
- Some ATO Tax Debts.
- Some Centrelink Debts.
- Joint debts.
Can I include my fines in the debt agreement?
No. Generally fines cannot be included.
What happens with joint debt?
Joint debts can be included in a Debt Agreement, but a creditor still has the right to chase the other party for the debts.
What happens if someone else has guaranteed my debt?
If someone else has guaranteed your debt, they are called a Guarantor. If you enter Debt Agreement, it is still possible for the person owed money to chase the Guarantor for payment.
What is AFSA and what do they do?
The Australian Financial Security Authority (AFSA) is a government department run by the Attorney-General. AFSA manage bankruptcy laws and their operations. AFSA supervises RDAAs.
What are the relevant dates during a Debt Agreement?
The relevant dates during a Debt Agreement are:
Processing Date: This is the date AFSA accepts your Debt Agreement for processing and sends it to creditors.
Final Date for Voting: This is the final date for creditors to vote on your proposal and is 35 days from the processing date, or 42 days if the debt agreement proposal is processed in December.
Do all my creditors have the right to vote?
Yes, all unsecured creditors have the right to vote. Secured creditors can only vote on any unsecured part of their debt – that’s the difference between the amount of the debt owed to them and the value of the assets secured over (such as your house).
Do all creditors have to agree to my proposal?
No. A Debt Agreement is approved of a majority in value votes yes – that is, greater than 50% in value. So if some creditors vote No to the proposal, they are still bound if the majority in value voted yes.
What happens if the Debt Agreement proposal is not accepted by creditors?
If the creditors reject a proposed Debt Agreement, you’ll then need to assess your options. A creditor who is owed more than $10,000 can make an application to the Court for the Court to make you bankrupt.