If you are facing financial difficulty and don’t want to go bankrupt, you may wish to consider a compromise with your creditors under Part IX of the Bankruptcy Act 1966. Such a compromise is commonly referred to as a Debt Agreement.
What is a Debt Agreement
A Debt Agreement is a way for individuals with low levels of debt, income, and assets to settle debts which they owe and avoid bankruptcy. Under this type of arrangement, a debtor proposes to repay an agreed amount – usually less than the full debt – either by way of an up front payment or over a period of time.
Creditors then vote on the proposal. If a majority in value of those who vote accept it, the proposal becomes binding on all unsecured creditors, including those who did not vote or voted against it and unsecured creditors cannot take action to recover their debts.
How Debt Agreements Are Managed
A Debt Agreement must be administered by a registered debt agreement administrator or bankruptcy Trustee. Their responsibilities include:
- Preparing and lodging the proposal.
- Collecting the debtor’s contributions.
- Distributing dividends to creditors
The process of putting the proposal to creditors and managing voting is the responsibility of AFSA which is a Federal Government department.
This ensures the process is transparent and compliant with legislative requirements.
Why Creditors May Accept a Debt Agreement
Creditors may accept a Debt Agreement proposal as it may provide for a better and more certain return than if a debtor was to become bankrupt. Some creditors, such as banks, may have certain minimum amounts they will accept in respect of any proposal.
Eligibility Criteria
To propose a Debt Agreement, an individual must meet several statutory requirements, including:
- Insolvency; being unable to pay debts as they fall due.
- Have not been bankrupt or party to a Debt Agreement or Personal Insolvency Agreement in the previous 10 years.
- Have debts and assets of less than statutory threshold amounts which are indexed and available on AFSA’s website here.
- Earn less than a certain income threshold which is available on AFSA’s website here.
Further Information Regarding Debt Agreements
We have further information regarding Debt Agreements available on our website here.
If you are seeking advice regarding the possibility of putting forward a proposal for a Part IX Debt Agreement, please contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.
