Considering a Debt Agreement (Part IX)
Debt Agreements are complex and can have serious and far-reaching consequences. It is important that you get personal, tailored advice before you make any decisions. This page contains simple and general information only. If you're considering a Debt Agreement, call us on 1800 007 007 for a discussion about your personal situation.
A Debt Agreement is an option that will assist you to tackle unmanageable debt. It is an alternative to bankruptcy. Once debtors have made all the payments and adhered to all the obligations required under the agreement, the debtors are released from most debts.
However, as proposing a debt agreement is an act of bankruptcy, if your creditors don't accept the proposal, they can use it to apply to the court to make you bankrupt.
In general, you should only consider a Debt Agreement after you have talked to a financial counsellor.
Debt Agreements are only suitable for people in very specific circumstances. These circumstances include:
- you have significant assets to protect
- you're a company director and need to remain a director
- you have income above the contribution rate for bankruptcy
- you have numerous debts (although bankruptcy could be a better option depending on other factors)
How much you pay back
All creditors will receive the same proportion of the amount you owe. For example, if you propose to repay 90% of all your outstanding debts over a three-year period, then all creditors will get 90% of what you owe them.
To be eligible you must be able to demonstrate that you:
- can afford the proposed repayments
- have not been bankrupt or had a debt agreement in the past 10 years
- have unsecured debts of less than a specified amount*
- have non-exempt assets valued at less than a specified amount*
- the proposed payments meet a payment to income ratio
- expect that your after-tax income for the next 12 months will be less than a specified amount*
The complete eligibility criteria are on the Australian Financial Security Authority (AFSA)'s website.
* Refer to AFSA's Indexed Amounts for these values.
The Debt Agreement can only be for a term of up to three years, or up to five years if you own your own home.