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What is a Debt Agreement?

Debt Agreements

When someone is facing mounting debts, one immediate assumption is that bankruptcy is the only option. However this is not always the case. In fact, we believe Bankruptcy should be the last solution. A Debt Agreement is an alternative to bankruptcy and often a preferable option to all parties involved.


What is a Debt Agreement?

It is a legally binding agreement between an individual with debt and their creditors, in order to settle their debts over a period of time.

It is used for an individual that fits the eligibility criteria and wants to settle their debts in order to avoid bankruptcy. Typically, it can provide better results for creditors than if that individual was to enter into bankruptcy.

As it is a formal process, a Registered Debt Agreement Administrator must facilitate the full process. This is to ensure that the formal agreement is legal and adhered to so all parties are satisfied with the obligations being met within the agreement. Although this process is an alternative to bankruptcy, there are consequences that should be known prior to entering into the agreement.


What are the eligibility requirements?

There are a few eligibility requirements that must be met in order for an individual to enter into a Debt Agreement.

  1. The individual is unable to pay their debts when they fall due.
  2. The individual has never been bankrupt, had a debt agreement or personal insolvency agreement within the past 10 years.
  3. They must have unsecured debts and assets less than the indexed amounts provided by AFSA.

The individual’s after tax income for the next 12 months must be less than the indexed amount provided by AFSA.

  • Current Indexed Amounts as at 21 March 2022:
  • Unsecured Debt must be less than $123,578.00
  • Assets must be valued less than $247,156.00
  • After tax income (p/a) must be less than $92,683.50

Note: Indexed amounts change with CPI or base pension rate.


Key Takeaway

If a client may be facing financial distress, it is critical that they seek professional advice from a Registered Debt Agreement Administrator immediately. The earlier the intervention, the more options of debt resolution will be available to your client.

We provide a free confidential consultation to ensure clients know all their options when faced with unmanageable debts.

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