What is a Debt Agreement in Australia?
A debt agreement, commonly known as a Part IX debt agreement, is a formal arrangement between debtors and creditors that facilitates a structured repayment plan for outstanding debts. By opting for a debt agreement instead of bankruptcy, individuals can avoid the severe consequences associated with bankruptcy proceedings. These agreements are regulated by the Australian Financial Security Authority (AFSA) and fall under Part IX of the Bankruptcy Act 1966.
Criteria for Debt Agreements in Australia
To be eligible for debt agreements in Australia, individuals must meet specific criteria, which include:
Insolvency: Demonstrating an inability to repay debts as they become due.
Income, Assets, and Debts Thresholds: Meeting the predetermined thresholds set by AFSA concerning after-tax income, assets, and unsecured debts.
- Income Threshold: As of September 2022, the after-tax income threshold stands at $89,962.40 (indexed annually).
- Asset Threshold: The asset threshold for September 2022 is $113,982.80 (indexed annually).
- Unsecured Debts: The total unsecured debt must not exceed $120,652.80 (indexed annually).
Entering into Debt Agreements in Australia
The process of entering into a debt agreement typically involves the following steps:
Proposal: Collaborate with a debt agreement administrator who will assist in drafting a proposal that outlines your financial situation, income, assets, and debts. The proposal is then submitted to your creditors for consideration.
Creditor Acceptance: Creditors are given a 35-day voting period to accept or reject the proposal. To be accepted, the proposal must receive a majority vote in terms of both the number of creditors and the value of debt.
Binding Agreement: If the proposal is accepted, a legally binding debt agreement is established. Regular payments are made to the debt agreement administrator, who then distributes the funds among the creditors according to the agreed-upon terms.
Debt Repayment: Over a period of three to five years, regular payments are made towards the debts covered by the agreement. During this time, interest and fees on the debts are frozen, and creditors are prohibited from taking legal action or contacting you for payments outside the agreement.
Why speak to Brunet Law
Consulting with a lawyer such as Brunet Law is crucial when considering a debt agreement for the following reasons:
Expert Guidance: A knowledgeable lawyer can provide personalised advice based on your unique circumstances, assessing the suitability of a debt agreement and offering alternative debt relief options if necessary.
Legal Protection: Lawyers ensure your rights are protected throughout the debt agreement process. They review and negotiate the agreement's terms to ensure fairness and reasonableness.
Complexity: Debt agreements can be intricate, with complex legal language that may be challenging to navigate independently. Lawyers help you understand the implications, obligations, and consequences associated with entering into a debt agreement.
Representation: In the event of disputes or complications during the debt agreement, lawyers serve as your advocates, representing your interests and negotiate on your behalf.
Suitability: A debt agreement may not be suitable for your particular situation. Other options to consider are also a personal insolvency agreement or bankruptcy.