Debt agreements were introduced in 1996 as a low cost alternative to bankruptcy for consumers on a low income with little property. Since this time, the number of debt agreements has gradually increased as people with debt issues look for alternatives to bankruptcy and debt consolidation. Debt agreements are administered by the Insolvency and Trustee Service Australia (ITSA).

 

We have answered 12 frequently asked questions about debt agreements, debt consolidation, bankruptcy and ITSA, however if you have any other questions, please don't hesitate to give us a call on our hotline: 1300 138 188. We're happy to answer any questions you have on debt agreements and debt consolidation strategies.

 

1. What is a debt agreement?

A Part IX debt agreement is a legally binding agreement between a debtor and their creditors. Debt agreements are a flexible alternative to bankruptcy and a popular debt consolidation strategy administered by ITSA.

 

2. What does a debt agreement do?

Once submitted to ITSA and accepted by creditors, a debt agreements "freezes" provable unsecured debts.

 

This means you can settle the debts over a short period of time, at an affordable amount per week. Examples of unsecured debts are medical bills, store card debts, credit card debts and some personal loan debts.

 

3. Is a debt agreement the same as bankruptcy?

No, a debt agreement is an alternative to bankruptcy – even though a debt agreement is "an act of bankruptcy" it is a low cost alternative to bankruptcy for consumers on a low income with little property.

 

4. Will I be able to make one payment per week to all my unsecured creditors as with other debt consolidation strategies?

Yes, we will set up a weekly payment system by way of direct bank debit.

 

5. Who can enter into a Part IX Debt Agreement?

The debt agreement system administered by ITSA is for insolvent people, i.e. those unable to pay debts as and when they fall due. A debt agreement can be proposed by a debtor who has -

Not declared for bankruptcy / been in a debt agreement or similar in the last 10 years;

After tax income of less than $66,284.40;

Unsecured debts of less than $88,379.20.

 

6. What is the debt consolidation process for debt agreements with ITSA?

 

Step 1: We assess your situation and make sure that a debt agreement is an affordable and appropriate debt consolidation solution.

 

Step 2: Your application for a debt agreement is lodged with ITSA.

 

Step 3: ITSA records your debt agreement application and notifies your creditors, requesting they vote on the proposal. During the voting period, creditors cannot demand payment from you or commence / continue legal action against you.

 

Step 4: Creditors assess the debt agreement proposal and vote.

 

Step 5: ITSA checks and counts the votes. If a majority (in value) vote in favour of your debt agreement, all creditors are bound by it – even those who voted against the debt agreement.

 

7. Can you guarantee that my creditors will accept my debt agreement proposal?

It is your creditors who decide whether they accept or reject your debt agreement proposal. However, as a debtor your responsibility is to make full and complete disclosure of your financial position; put forward the best offer you can and commit to complying with the terms of the debt agreement proposal as outlined by ITSA.

 

8. Will a debt agreement affect my credit rating?

Both the debt agreement proposal and the debt agreement are registered on the National Personal Insolvency Index (NPII). Veda Advantage, the credit reporting agency uses the information on the NPII to advise any creditors that you are under a debt agreement and/or have submitted a debt agreement proposal.

 

9. How long does it take for creditors to vote on a debt agreement proposal once ITSA received it?

Once ITSA has accepted your debt agreement proposal for processing, creditors may vote to either accept or reject your proposal within 25 working days.

 

10. Should I continue to talk with my creditors regarding my debts?

Your relationship with your creditors is important and by talking with them you can explain to them your situation and ask them to support your debt agreement proposal in order to settle the debt.

 

You may also forward their contact details to us and we will talk with them on your behalf.

 

11. What happens if my creditors reject my debt agreement proposal?

Should creditors reject your proposal then we may be able to resubmit. However this will depend on your creditors and the reasons why they rejected the debt agreement proposal. Should this happen we will contact you to work out a solution.

 

However, if creditors reject your proposal your debts are revived. This means that creditors can pursue you for payment and any interest accrued during the 25-day period.

 

12. What if I want to get out of, or change a debt agreement? Does ITSA allow it?

You can change or end a debt agreement if a majority (in value) of your creditors agree to this. It is possible to obtain a court order to get out of the debt agreement but you should seek legal advice before considering this option.

 

Three important facts about debt agreements & ITSA:

1. Creditor's debts are fixed at the date the proposal is entered with ITSA.

2. Creditors cannot charge you any more interest on these debts.

3. Creditors cannot take or continue action against the debtor to collect their debts.

 

Contact the Australian Lending Centre for information on debt consolidation, debt agreements, ITSA, protection from creditors and alternatives to bankruptcy.