Debt agreements came into place in 1996 as an alternative to bankruptcy. They were means to offer debt relief assistance to borrowers who are insolvent, with limited assets and low income. Prior to the introduction of a debt agreement alternative, if you were not able to maintain debt repayments, bankruptcy was the only alternative.
To qualify for a debt agreement you must first of all be insolvent and be able to prove that to the agreement administrator as well as your creditors. Choosing a debt agreement proposal as a way to simply get out of making a full debt payment to your creditors will not work.
Only someone who has not been in a debt agreement or bankruptcy during the past 10 years is able to propose a debt agreement to their creditors. The official receiver will try to verify this fact by looking for your name on the National Insolvency Index. Honesty is the best policy.
Your debts must be mostly unsecured, as it is not possible to include secured debts into a debt agreement
You are able to pay the set lodgement fees and other fees associated with proposing a debt agreement to your creditors.
It is worth noting that your agreement proposal has no guarantee of success. It has to be accepted by the majority of your unsecured creditors in order for the agreement to stand.
There is always a risk that your creditors will decline to accept your proposal and push you into bankruptcy. They are able to do so as in proposing an agreement you are effectively declaring your insolvency.
If your income or debt or asset position falls outside of the parameters specified for a Debt Agreement, you may still qualify for a Personal Insolvency Agreement. Personal Insolvency agreements are suitable for people who are insolvent and have not applied for relief under the Bankruptcy act of Australia over the past 10 years.
However if your income, debts or assets are higher than the limits set for a debt agreement, you may seek debt reduction from your creditors via a personal insolvency agreement.
In most circumstances your property will not need to be sold and you will simply be able to achieve reduced payments in full settlement of your debt.
A Personal Insolvency Agreement is a declaration of insolvency. Creditors may decide to use this in order to push you into bankruptcy, although this is rare as they are likely to receive more of their money if they do not do so.