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Posted by Revive Financial on Feb 14, 2019 2:00:00 PM

Debt agreements continue to be a popular solution for people struggling financially.

According to the Australian Financial Security Authority, there were 4,117 new debt agreements made in 2022/23.

While they can be extremely effective, debt agreements are not always the best option. If you’re considering one, here we explain exactly what a debt agreement is, as well as run through the pros and cons, to help you make the right decision.

What is a Debt Agreement?

A debt agreement is a formal arrangement with creditors where you commit to pay a sum of money towards your debts over a set period of time (typically 3-5 years). It falls under Part IX (9) of the Bankruptcy Act 1966 and is arranged through a debt agreement administrator (DAA).

The payment amounts, terms and time frame of a debt agreement are proposed by you depending on what you can afford. Creditors then vote whether to accept or reject your proposal. If the majority accept, all creditors are bound to the agreement whether they vote or not.

Debt agreements are only available to people with an after-tax income under $105,009.45 and unsecured debts of less than $140,012.60. They are generally used for consumer debts including credit cards, personal loans and shortfalls on finance agreements.

Pros of a Debt Agreement

  • Your debts are consolidated into a single, manageable payment plan
  • Interest on your debts is paused, so every payment you make directly reduces the principal
  • Creditors can no longer contact you directly – they must work with your administrator
  • You may still be able to keep your home or other assets, which could be lost in bankruptcy, if negotiated as part of the agreement
  • Your mortgage and applicable interest rate remain the same
  • You can avoid the restrictions of bankruptcy (e.g. keep your passport, be a company director)
  • The creditor acceptance rate for debt agreements is above 85%.


Cons of a Debt Agreement

  • It can be more expensive than bankruptcy
  • You have to pay up-front setup fees for a debt agreement
  • DAA costs (approx 25%) may mean you end up paying more than the principal amount of your debts
  • It’s recorded on the National Personal Insolvency Index and your credit report for 5-7 years
  • If it fails, you can still become bankrupt, extending the time until you’re released from your debts
  • You need a stable income to meet instalments for the whole 3-5 years
  • You will still have to pay HECS/HELP, child support and fines/penalties
  • Most agreements last longer than bankruptcy (5 years compared to 3 years)

Is a Debt Agreement Right for Me?

While a debt agreement may have numerous pros, including enabling you to manage your debts without the severe consequences of bankruptcy, they also have some potential downsides and demand a high level of commitment and ongoing financial stability.

A debt agreement can end up costing you more than bankruptcy and push your debt to the full five years. It also requires you to have sufficient income available to cover your living costs and debt agreement payments across the agreed time frame.

Because of this, deciding whether or not to commit to one is a personal decision that should be made based on the specifics of your situation. It’s also one that should not be taken lightly as a debt agreement can delay or worsen your financial hardship.

To help you make the right choice, we recommend speaking with one of our experts. We can help you weigh up whether a debt agreement is worthwhile and affordable for your situation, as well as advise you on the next steps in either case.

Keen to weigh up the options to manage your debts with a professional? Contact us today.

For more information on personal debt, check out our personal debt page here.

Topics: Personal Insolvency, Debt Agreements, Personal Debt, Debt Management Solutions

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