Part 9 - Debt Agreement

Part 9 Debt Agreements (more commonly referred to as simply Debt Agreements) are an arrangement created by the Commonwealth Government to help people deal with their unsecured debts (such as credit cards, personal loans, tax debt, old utility bills, medical bills and school fees). An unsecured debt is one that that is not ‘secured’ (or borrowed against) property. In contrast, a home loan or a car loan is usually secured as that property can be reclaimed if you don’t meet the repayments.

Under a Debt Agreement, a Government registered debt administrator negotiates with all of your lenders for you to make a reduced repayment on your unsecured debts (listed above) and for the interest to be frozen. The debts are also consolidated so you only make one regular repayment until the newly agreed (reduced) amount is repaid. Any remaining debt is legally written off.

People sometimes ask why lenders would agree to a Debt Agreement, whereby they’ll receive less than the full debt back with no interest. The reason is quite simple. Under a Debt Agreement, the lender will still receive a reasonable portion of their debt back, whereas if someone struggling with debt chooses to go bankrupt, the lender will often receive nothing. So it’s a win-win compromise for both the lender and the borrower and most major lenders in Australia do accept debt agreements for this reason.

When you call us, one of our main tasks will be to establish who you owe and what the rate of return for the lender would be under bankruptcy – so that we can suggest a Debt Agreement repayment offer that’s agreeable to both you and your lender.

Are there any restrictions?

It’s important to note that a Debt Agreement is not the same as a bankruptcy. Some limited conditions do apply however.

A Summary of Consequences Following Entry into a Debt Agreement:

• The debtor is not bankrupt.

• The debtor is released from most unsecured debts when they complete all their obligations and payments.

• A debtor who proposes a debt agreement commits an act of bankruptcy. A creditor can use this to apply to court to make the debtor bankrupt if the proposal is not accepted by creditors.

• The debtor’s name and other details appear on the National Personal Insolvency Index (NPII), a public record, for the proposal and any debt agreement.

• The ability of the debtor to obtain further credit is affected. Details may also appear on a credit reporting organisation’s records for up to seven years.

• During the voting period, creditors cannot take debt recovery action or enforce a remedy against the debtor or the debtor’s property and must suspend deductions by garnishee on the debtor’s income.

• All unsecured creditors are bound by the debt agreement and are paid in proportion to their debts.

• Secured creditors may seize and sell any assets (eg. a house) which the debtor has offered as security for credit if the debtor is in default.

• Creditors cannot take any action against the debtor or property of the debtor to collect their debts.

• The agreement does not release another person from a debt jointly owed with the debtor.

• A debtor must disclose that s/he is a party to a debt agreement if incurring debt or obtaining goods and services in excess of the threshold.

• If trading under a business name or assumed name (whether alone or in partnership) the debt agreement must be disclosed to all people dealing with the business