Are you struggling to keep up with your DA (Part IX (9)) payments and considering debt agreement termination? Or are you considering entering a DA but worried about the consequences if you can’t keep up with it?
Debt agreements aren't something to be taken lightly. They’re a legally binding agreement between you and your creditors. If you don’t make the agreed payments, there are negative consequences.
Because of this, debt agreement termination can seem like a good way out. However, terminating isn’t a ‘get out of jail free’ solution to your financial problems. It can actually lead you into further troubles, increasing the pressure and stress.
The Negative Consequences of Termination
You may already be aware of the consequences of failing to keep up with your debt agreement payments, which is why you’re seeking a termination.
When you miss a payment, your administrator will contact you to discuss options to remedy the arrears to the agreed repayment schedule. Your administrator may be required by law to provide a default report to creditors if the missed repayment is not remedied within 3 months. A default report to creditors can provide the creditor grounds to seek termination of the Debt Agreement due to failure to make agreed repayments.
If you fail to make payments for six consecutive months, or fail to make all agreed repayments within six months of the agreed end date of your Debt Agreement, the agreement will automatically be terminated as required by law.
The other way to terminate your Debt Agreement, is to propose termination to proactively your creditors.
When you submit a request for a debt agreement termination to creditors, and they accept it, or they initiate one, the following can happen:
- Creditors can resume collection action to recover outstanding debts
- Asset protection provided under the agreement will cease
- Interest, fee, or penalty charges can resume on the accounts, and may be backdated to the beginning of the agreement
- The Debt Agreement will show as terminated on your credit file and remain for 5 years from the date of acceptance, or 2 years from the date of termination, whichever is later.
It is also important to note if a Debt Agreement is terminated, you are not eligible to propose a Debt Agreement for 10 years from the date of termination. As a result, Bankruptcy is often the option left available to address the consequences above.
The good news is you may have another option to Debt Agreement termination if making payments has become unmanageable. Termination may be a suitable to path in specific circumstances, generally where you are no longer in a position make any reasonable repayment and have decided to pursue Bankruptcy, however it is important to work with your administrator to discuss any alternatives before pursuing termination.
Option to avoid termination may include:
- Informing your administrator on the cause of any arrears to agreed repayments, and making slightly increased repayments to bring the agreement back on track
- Ask your administrator to communicate your intention to completing the agreement within 6 months of the agreed completion date to creditors
- Consider if a change in circumstances since entering the agreement may provide reasonable grounds to propose a Variation to the Debt Agreement
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Ease the Struggle With Variation
If you've experienced a change in circumstances and are struggling to maintain your agreed DA payments as a result, the alternative, and a far better first option, is to explore the possibility of a variation.
A variation means proposing a change or amendment to the terms and conditions of your existing debt agreement. The process is very similar to the preparation of the Initial Debt Agreement and allows you to request an alteration to your Debt Agreement when you can no longer meet your payment obligations due to a change in circumstances.
To check if varying your debt agreement is a suitable option for you, you should contact your administrator to discuss. If suitable, a variation proposal form is submitted to the Australian Financial Security Authority (AFSA) and requires a majority vote in favour (>50% total debt) from creditors to be accepted.
What Circumstances Count?
Changes of circumstances accepted in a debt agreement variation proposal are:
- Change in secured creditors, including lease/hire purchase where there was an intention to maintain payments, or repossession of a secured vehicle causing a shortfall debt
- Change in unsecured debts owed at the time of debt agreement proposal (e.g., debts not in the original proposal)
- An increase in the number of dependents or child support commitments
- Change in household income impacting ability to make payments
- Change in support from others to help with payments offered in the proposal
- Change in expected household expenses for the next 12 months
- Change in special needs of debtors/dependents
Say No to Debt Agreement Termination
While terminating something generally implies you’ll be free from it, when it comes to debt agreements, you could end up in an even worse financial situation than the one you were facing before the agreement was in place.
As with most debt situations, when you’re struggling to make repayments, asking your creditors to amend the terms and conditions of your agreement is always the best place to start. In a Debt Agreement, you have the added benefit of your Debt Agreement administrator communicating with your creditors on your behalf. Creditors generally understand you are making your best effort to repay the debt and avoid Bankruptcy, and are sympathetic where your inability to meet the agreed repayments has been influenced by things outside of your control.
The earlier you communicate with your debt agreement administrator, the better. Swift action means better outcomes and fewer sleepless nights.
If you’re worried about defaulting on a debt agreement or are considering entering into one, get in touch with our team of debt solution specialists today on 1800 534 534 for professional, non-judgemental support and advice.
