What the Government wants you to know

Debt Agreements

A debt agreement is a binding agreement between you and your creditors where creditors agree to accept a sum  of money which you can afford.

Payment by you is based on your capacity  to pay having  regard to all your income and household expenses.

A debt agreement is an option to assist debtors with unmanageable debt.  You are released from your debts when you complete all payments and obligations under the agreement.  A debt agreement may provide for:

weekly or monthly  payments from the debtor’s income (by far the most common form of Debt Agreement),

deferral of payments for an agreed period,

the sale  of an asset to pay creditors, and/or

a lump sum  payment to be divided among creditors.

Who can propose a Debt Agreement?

You can lodge a debt agreement proposal if you:

have paid the government lodgement fee ($200.00) in full or have an arrangement with ITSA about payment in arrears,

are  insolvent (unable to pay your  debts as and when they fall due),

have not been  bankrupt, had a debt agreement or given an authority  under Part X of the Bankruptcy Act in the last  10 years,

have unsecured  debts, assets and after-tax income  for the next 12 months all less than the set limits.

Consequences of proposing a Debt Agreement

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 debtor’s income.

The consequences of the Debt Agreement

You are not bankrupt.

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

You are released from most unsecured debts when you complete all your obligations and payments.

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.

 

WHAT IS THE PROCEDURE?

STAGE 1: INFORMATION

The debtor must  read  the Prescribed Information about the alternatives and consequences of bankruptcy and debt agreements. This is available from ITSA.

 

STAGE 2: PROPOSAL IS LODGED AND FEE PAID

The debtor completes and lodges  three forms with ITSA: a debt agreement proposal; an explanatory statement; and a Statement of Affairs. They must be received by ITSA within 14 days of being signed and the lodgement fee must be paid in full.  Your administrator will be able to advise you on the amount and assist you with how to pay the lodgement fee.

If an administrator consents to administer the debt agreement they must lodge a certificate that they have reasonable grounds to believe that the debtor has disclosed all the information required and is likely to be able to make the payments due over the period of the agreement.

 

STAGE 3: PROPOSAL IS SENT TO CREDITORS TO ASSESS AND VOTE ON

ITSA checks that:

 the lodgement fee has  been  paid in full,

the debtor is eligible to lodge a debt agreement proposal,

the debt agreement administrator is eligible to administer debt agreements,

 every question on each  of the three forms is answered.

ITSA sends the proposal and explanatory statement to creditors, asking them  to detail their  debts and to vote on the proposal.

Creditors then  assess the proposal and vote. Any questions are  referred to the debt agreement administrator.

A secured creditor (holding security like a hire purchase agreement or mortgage) is entitled to vote and receive dividends  on any unsecured part  of their  debt.  Alternatively a secured creditor may chose  not to receive a dividend and rely on their  security.  Secured creditors’ rights in relation to dealing with their  security are  not affected by a debt agreement.

 

STAGE 4: ITSA CHECKS AND COUNTS THE VOTES

For a proposal to be accepted, ITSA must receive ‘yes’ votes from a majority in value of the creditors who vote.

If the proposal is accepted by creditors the debt agreement administrator is responsible for:

collecting payments from the debtor,

keeping creditors and debtors informed,

paying dividends  to creditors,

telling  ITSA when the debt agreement is completed.

If the proposal is not accepted by creditors:

it remains on the NPII and on the records of credit reference agencies,

creditors are able to commence recovery action including  for accrued interest.

 

CAN A DEBT AGREEMENT BE VARIED OR TERMINATED?

A variation  proposal may be lodged if the debtor’s circumstances have changed.

A termination proposal may be lodged  by the debtor or a creditor if the terms of the debt agreement are  not being carried out.

Creditors vote on a proposal to vary or terminate in the same way as they vote on the original  proposal.

If it is not accepted by creditors, the terms of the debt agreement remain  in force.

The agreement is automatically terminated if:

the debtor has not made any payments for six months after  a payment is due, or

the debtor does  not complete their payments within six months of the completion date  of the agreement.

The effects of terminating a debt agreement include:

creditors can commence or recommence recovery  action against the debtor, and

the termination of the debt agreement is registered on the NPII.

The debtor, a creditor or ITSA may apply to the court  for an order to terminate a debt agreement.

Creditors may apply for an order that the debtor be made bankrupt.

 

WHEN DOES A DEBT AGREEMENT END?

A debt agreement ends  when:

the debtor has completed all their obligations and payments, or

the court  orders the debt agreement be terminated or declared void, or

the debt agreement is terminated by creditors.

ADMINISTRATOR FEES AND CHARGES

Debt agreement administrators and other advisers may charge a fee for providing information and preparing debt agreement forms. Debt agreement administrators also charge a fee for receiving  and distributing the money. This must  be taken as a percentage of each  payment made by the debtor.

Funds  realised by an administrator are subject to a realisations charge (a government levy) which is paid by the administrator directly to the government. Any interest earned on funds realised by a registered debt agreement administrator is payable to the government.

GOVERNMENT LODGEMENT FEE

The Government decided that a fee of $200.00 should be payable on presentation of lodgement of a debt agreement proposal. The fee commences on 1 October  2010.

The government lodgement fee may be paid to an administrator who has an account with ITSA. The administrator will be invoiced on a regular basis.