If you’re experiencing financial distress, a Part IX (9) Debt Agreement (Debt Agreement) allows you to combine your debts into one affordable repayment based on your budget. A Debt Agreement puts a stop to creditor harassment, reduces debt stress, and allows you to rebuild your finances. However, it’s important to understand the eligibility criteria and the types of debts that can be included in a Debt Agreement.
For a debt to be included in a Debt Agreement, it must be a ‘provable debt’. As defined by the Australian Financial Security Authority (AFSA), a provable debt is one that entitles the creditor to participate in dividends paid in the bankrupt estate.
A provable debt generally extinguished after the end of a Debt Agreement or Bankruptcy. However, there are few debts which will not be extinguished, such as Child Support or Child Maintenance.
Unsecured Debts
What is an Unsecured Debt?
Unsecured debts are a type of debt that is not protected by a guarantor or secured by an asset. This means that if you fall behind on your repayments, the creditor cannot claim assets for the debt. However, creditors may sell the debt to a debt collector or ask the court to garnish your wages.
What Unsecured Debts can be included in a Debt Agreement?
A Debt Agreement can include most unsecured debts, such as:
- Credit and store cards,
- Unsecured personal loans and payday loans,
- Utility bills such as gas, electricity, phone and internet (disconnected supplies or from a previous address you occupied),
- Overdrawn bank accounts and unpaid rent, and
- Medical, legal and accounting fees.
Unsecured debts which are generally not included in a Debt Agreement include:
- Court fines,
- Student loans such as HECS, HELP and SFSS,
- Traffic infringement fines,
- Council fines,
- Council rates (if you still own the property),
- Debts incurred through crime, and
- Debts incurred after the date of your Debt Agreement proposal.
You may also need to confirm with your creditor if they can still pursue you for the following debts:
- Debts you incur by fraud (Centrelink debts),
- Child support debts (arrears may be included but not ongoing obligations),
- Fines, penalties and court-ordered payments, and
- Overseas debts.
AFSA provides a comprehensive list of debts which are included in a Debt Agreement or Bankruptcy.
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Secured Debts
What is a Secured Debt?
Secured debts are secured by an asset, such as a house, car or an item you are renting to buy. The asset serves as collateral for the debt. If you were to default on your repayments, the creditor has the right to repossess the asset, sell it and keep the proceeds to repay the debt you owe.
If you are experiencing financial hardship and struggling to repay your secured debts, you may be able to surrender the asset to your creditor before involuntary repossession occurs.
How can part of a Secured Debt be included in a Debt Agreement?
If you owe more on your debt than the value of the secured asset, the shortfall amount is included in a Debt Agreement.
For example, if you took out a secured debt on a car for $25,000, defaulted on your repayments and had the car repossessed, the creditor may only be able to sell the car for $10,000. All fees that may be required to sell the car, such as fees applied by the creditor, debt collectors, car towing and auction house are included meaning the selling price of the car may be considerably less. The shortfall would then be assessed to determine if it could be included as an additional unsecured debt in a Debt Agreement.
If your assets have not yet been surrendered or repossessed, you can keep them by continuing to repay your secured creditors outside of the Debt Agreement.
Joint Debts
What are Joint Debts?
Joint debts occur when you borrow money or obtain funds with someone else, such as your spouse. This occurs when:
- Both parties apply for and sign a loan agreement as co-borrowers, or
- One party co-signs or guarantees payment of another person’s debt.
A joint debt means both parties are equally responsible for the repayments. If one party fails to meet repayment obligations, a creditor will look at the other party for full payment of the debt.
One hundred percent of a joint debt is included in a Debt Agreement, not just the debtor's share of the debt. A creditor will retain the right to pursue the other party for balance of the debt and any shortfall on the full monthly repayment due. Only the party who is in the Debt Agreement is protected from further recovery of the joint debt. However, the other party could consider entering into a Debt Agreement, to avoid the creditor pursuing the balance of the joint debt.
Australian Taxation Office (ATO) Debts
Certain ATO debts can be included in a Debt Agreement. Individual and partnership debts can be included, however company ATO debts cannot. Any income tax refunds or BAS refunds will first be used to offset any of your tax debts, including those ATO debts in a Debt Agreement. Only once ATO debt has been repaid or the Debt Agreement is completed will you receive a refund.
Rescue Your Finances with a Debt Agreement
Take control of your finances with a Debt Agreement at Revive Financial. We’ll help you consolidate your debts into one affordable payment, stopping creditor harassment and reducing stress. Our experts will create a tailored plan to fit your budget, so you can focus on what matters most. Start your journey to financial freedom—call us today at 1800 534 534 for a free debt analysis.
