Debt Agreements | Part IX
What is a Debt Agreement?
Put quite simply it’s a legally binding agreement between you and your creditors to settle your debt to them. Generally this will be regular repayments of a set amount over a period of time, based on your capacity to pay. Creditors vote on whether they will accept your proposal, and once accepted your Debt Agreement comes into being. You will also hear this referred to as a Part IX Debt Agreement.
Are there any eligibility requirements?
There are as follows:
- You must be insolvent, which means that you are unable to pay your debts as they fall due.
- In the last ten years you must not have been bankrupt, had a previous Debt Agreement or signed an authority under Part X of the Bankruptcy Act
- There are thresholds for the amount of assets you can have, income you can earn and your total debts.
Does it affect my credit file?
A Debt Agreement is listed on your credit file in the same way as a default, however completed debt agreements are now removed from the NPII after five years following amendments to the Bankruptcy Act which took place in November 2015. The changes further increase the benefits of debt agreements over bankruptcy.
Does this mean I’m Bankrupt?
Absolutely not. This is an alternative to bankruptcy where you repay as much as possible of your debts. You can travel, run a business and most importantly, establish a payment history to show future lenders that you are in control of your finances.
A Debt Agreement is covered by the Bankruptcy Act, and lodging a Debt Agreement is considered an Act of Bankruptcy, but you are not Bankrupt.
Are there any other consequences?
The Debt Agreement will be lodged on the National Personal Insolvency Index (NPII).
It will be difficult for you to obtain credit, particularly unsecured credit, during the period where the Debt Agreement is listed on your Credit File.
You must disclose that you are a party to a Debt Agreement if applying for credit over a specified indexed amount.
If trading under a business name or an assumed name eg. Chicken Sheds Pty Ltd T/as We Build Chicken Sheds, you must disclose the debt agreement to everyone you deal with.
Does it cover all my debts?
It will cover all of your provable unsecured debts such as credit cards, store cards and unsecured personal loans. Your secured loans such as your mortgage must still be paid directly to your creditors as per normal.
There are some debts such as HECS and HELP debts that are also not covered by the Debt Agreement. DCS Group will advise you if any of your debts are not included so you can maintain repayments on these.
Do I have to include all my debts – I am happy to keep paying some?
You do – absolutely every single debt that you have needs to be listed in the Debt Agreement whether secured, unsecured, ineligible, joint and so on. There are no exceptions.
What happens to the interest on my debts while I’m in a Debt Agreement?
All interest is frozen once the Debt Agreement is accepted for processing. Once the Debt Agreement is accepted by creditors no further interest accrues on the debts paid via the Debt Agreement (but will still accrue as per normal on secured and ineligible debts)
Should I continue to pay my creditors?
You may continue to repay your creditors until your Debt Agreement is accepted by your creditors. You must continue to make payments on all secured debts, fines, rates, HECS/HELP and so on as these are disclosed in the Debt Agreement but will not be paid through the Debt Agreement.
I’ve got joint debt with partner. Will that be covered?
When your Debt Agreement is accepted by creditors, you will no longer be pursued for repayments by creditors, and once the Debt Agreement is paid in full, your responsibility for that debt is ended.
This will not apply to your partner. When you sign for a joint debt, both parties are jointly responsible for the full amount of the debt. Creditors will accept the Debt Agreement dividends but will still expect the other party to the debt, in this case your partner, to continue making the normal repayments. Your partner is not granted any protection from your Debt Agreement and will have to continue to make the normal repayments, including interest, until the debt is paid in full (including amounts you will pay to it). Your partner will have to speak with the creditor to see if some arrangement can be made, and may want to consider lodging a Debt Agreement themselves if they are insolvent or having difficulty making those required payments.
If you have a guarantor, the guarantor will have to continue making repayments if you cease to do so. Again they have no protection under your Debt Agreement.
Can we do a joint Debt Agreement?
No. There is no such thing as a joint Debt Agreement, but you can each lodge a Debt Agreement and a condition can be included which says that both proposals have to be accepted for the Debt Agreements to come into being. So if one is rejected by creditors and one is accepted, neither will go ahead.
DCS Group will advise you whether this will be the best course to follow.
Can my creditors still call me?
Prior to your Debt Agreement being accepted for processing, DCS Group will send your creditors a letter of authority requesting them to contact us. Creditors will still continue to send you periodic statements and written correspondence.
Your secured creditors will still be able to contact you for collection activity.
Once the Debt Agreement is accepted for processing your creditors will no longer be able to contact you for collection activity and any garnishees will be placed on hold until the result is known.
What do I have to do?
Provide all information that we request as quickly as possible to avoid unnecessary delays. Make sure we can contact you.
Tell us honestly about your situation, your assets, income and debts. Tell us immediately if something changes.
Read and sign the documents and remember there are penalties for providing false or misleading information.
How do I lodge a Debt Agreement?
AFSA, the Government Regulator, will only accept Debt Agreement Proposals from registered trustees, registered debt agreement administrators or those who are the administrator of not more than five debt agreements.
DCS Group are a registered and highly experienced Debt Agreement administrator.
DCS Group will talk with you initially to help you decide if this is a good option for you, and to ensure you meet the eligibility criteria. We will help you to work out what repayments you can afford, and the best offer to put forward to your creditors.
Your Case Manager will liaise with your creditors and oversee the preparation of the documents. They will tell you what documents you need to provide, such as proof of income, statements of debts and so on. They will also do a budget with you.
Once your paperwork is completed, your Case Manager will forward it to you, along with all relevant documentation, and you will need to read it and if you have any questions, call your Case Manager.
Once you are completely happy with the paperwork, sign and date it and return to DCS Group. We will submit it to AFSA as soon as we receive it after verifying that all relevant signatures and dates are present and it is within the 14 calendar day filing requirement (we have 14 calendar days from the date you signed and dated the paperwork to lodge with AFSA).
What do AFSA do with my proposal?
AFSA will assess the proposal to make sure that the documentation has been completed correctly. They also check that you are eligible to submit a Debt Agreement.
Once they are satisfied that the proposal meets all the criteria they will issue a Debt Agreement number and set the deadline date for creditors to vote.
How long to creditors have to vote?
Creditors are given 5 weeks to vote however if there are any public holidays in that period this will extend the voting period. AFSA closes over the Christmas period so the voting period will also be longer at that time.
AFSA collates the votes at the end of the process and will advise you and DCS Group of the result.
Who gets to vote?
All of your unsecured creditors vote, and secured creditors may vote on any portion of the debt that is not secured. What that actually means is that if you had a secured car loan that had a balance of $10000, and the car is valued at $8000, they may vote on $2000.
When creditors vote they also advise AFSA of the balance outstanding on the date AFSA accepted the Debt Agreement for processing, what other accounts they have listed for you, and whether the debt is secured.
Do all my creditors have to agree for my Debt Agreement or be accepted?
Not at all. You need a majority in dollar value from the creditors that do vote for your proposal to be accepted.
What if no creditors vote?
The proposal will lapse with no result and will have to be resubmitted.
What would make a creditor reject my proposal?
Some reasons would be failing to disclose all debts, not disclosing the correct debt levels, not disclosing income accurately, and if creditors feel that the Debt Agreement payments could be higher or even if they don’t believe the repayments would be sustainable for you.
So what happens with those creditors who don’t vote or reject my proposal?
All creditors are bound by the end result of the vote, regardless of whether they voted in favour, voted against, or didn’t vote.
What guarantee do I have that my proposal will be accepted?
Nobody can guarantee that your proposal will be accepted, as creditors will make that decision. What you can do is make sure you have been totally accurate in disclosing your debts, assets and income as well as your current situation, and put forward the best offer possible.
What happens if my proposal is accepted?
You make the agreed repayments to DCS Group as your Administrator. We will make periodic dividend payments to creditors, and supply you with a quarterly statement. You no longer make repayments to your unsecured creditors.
There is no interest on a Debt Agreement, and all interest and late fees on your unsecured debts cease.
DCS Group will handle any queries from your unsecured creditors.
Once you have completed all repayments outlined in your Debt Agreement, you will be released from these unsecured debts.
Do you pay out all my debts up-front?
No. Once your Debt Agreement is accepted by creditors, we will make dividend payments to your creditors from the monies you pay us. These monies are held in trust and distributed to creditors quarterly.
What happens if creditors don’t accept my proposal?
DCS Group will contact your creditors to see what concerns they had with the proposal, and then be in contact with you to see if you are happy to proceed with a resubmission meeting the creditors requirements. If this is not possible, DCS Group will discuss other options with you.
If the proposal is rejected, interest held from the commencement of the voting period will be added, any garnishee payments will resume and your creditors will be able to continue with collection activity.
What will it cost?
When you contact us initially we will go through your situation and advise you whether a Debt Agreement is the right option for you. We will send you a detailed information pack to help you make an informed decision.
Should you decide to proceed, we will charge you a set-up fee for the preparation of the documents and lodgement to AFSA. This fee will be clearly outlined in the information sent to you and is additional to the Administration and Realisations fees outlined below. The fee will be repayable in affordable installments.
AFSA also charge a Lodgement Fee for every Debt Agreement Proposal lodged – this is currently $200.00 and is charged once the proposal is lodged with AFSA, which will be included in your regular payments not as an “on top” charge.
Once the Debt Agreement is accepted by creditors, DCS Group will charge an Administration Fee to administer your Debt Agreement. This is clearly outlined in the Debt Agreement Proposal paperwork that we send you.
AFSA also charges a Realisation Fee once the Debt Agreement comes into being. Again this is clearly outlined in the Debt Agreement Proposal paperwork.
The total you will repay to creditors in addition to the Administration and Realisations Charges is included in the total to be repaid. That total is all you will repay – and there is no interest so you can repay it sooner if you are able with no penalty.
DCS Group do not refund the set-up fee or the lodgement fee.
What if I lose my job and I’m in the Debt Agreement?
Contact us immediately if your situation changes. We will be able to go through your options with you and advise you as to the best course of action.
What if I forget a debt?
Again, contact us as soon as you remember the debt. We will take the appropriate action depending on whether your proposal is in the preparation stage, is in the voting period, or has been accepted by creditors.