Formal Debt Agreements

What is a Debt Agreement?

A Debt Agreement is a legal and binding agreement between you and your creditors. It is also referred to as a Part IX Agreement of the Bankruptcy Act.

This is an alternative for you and your creditors to bankruptcy. The agreement includes your proposal to the creditors of terms you can afford to deal with your unsecured debts. Should the creditors agree it is then processed through a Government Agency known as the Insolvency Trustee Service of Australia (ITSA).

How does it work?

After completing an initial enquiry form which details your income and all of your debts, a budget is prepared to identify any surplus.  This surplus is the amount you can afford to repay to your creditors.

A proposal is then prepared and forwarded to your creditors for consideration and their vote on your proposal. If your proposal is accepted by a majority of creditors, you will now be able to commence payments to your creditors for the agreed term at a reduced rate.

Who is eligible?

There are certain guidelines and thresholds you must meet in order to be eligible for a Part IX Debt Agreement including:-

• No previous bankruptcy, Debt Agreement or authority under Part X of the Bankruptcy Act in the last 10 years
• Income after tax no more than $66,284.40* per annum ($1,274.70 per week)
• Total unsecured debts to be less than $88,379.20*
• Net assets to be less than $88,379.20*

(*these thresholds are updated according to CPI, figures shown here are current as at 20 March 2010)

Benefits

The benefits of entering into a Part IX Debt Agreement are many and are primarily to avoid official bankruptcy and its limitations on your lifestyle. You are able to consolidate your unsecured debts into one regular repayment you can afford.

Upon approval of your debt agreement the amount of each of your debts is frozen, meaning the outstanding amounts you owe to your creditors are fixed and no further interest continues to accrue. From that point, Debt Rescue liaises with the creditors – no further calls should be received from your creditors.

Debt Rescue negotiates the terms of the proposed debt agreement.  After approval, you make one regular weekly repayment. Debt Rescue then distributes the funds to the creditors on a regular basis according to the agreed proposal.

Not all creditors have to agree to the proposal, a majority of creditors (50% or more of the total dollar amount of the debt agreement application or a majority of those that actually vote).  The remaining creditors (those that did not record a vote or voted against the proposal) are still bound by the decision to proceed with the Agreement.

Also, upon approval all garnishees must cease, you are released from most debts, and creditors cannot enforce recovery proceedings on your debts.

Consequences

Quite simply, make no mistake, if you fail to meet your obligations under the Debt Agreement by not making your repayments on time and in full, the creditors are able to pursue all avenues for recovery.

They are also able to terminate or void your agreement. Your credit file will reflect a Debt Agreement application has been made.
Is this an option for you?

If so, contact us for a private and confidential discussion with one of our experienced and understanding franchisees.