Debt Agreements

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Why enter into a debt agreement?

When a person is insolvent (meaning they cannot pay their debts as and when they fall due) they may consider declaring themselves bankrupt by way of a debtor’s petition.

As an alternative to going bankrupt, an individual may seek to enter into an agreement which is binding on their creditors pursuant to the provisions of Part IX (Part 9) the Bankruptcy Act.

If an agreement can be reached, it is called a debt agreement.

A debt agreement is similar in concept to a Personal Insolvency Agreement (PIA), however a debt agreement is designed to operate for smaller, and less complex insolvent estates.

Am I eligible to enter into a debt agreement?

There are restrictions on who may be eligible to enter into a debt agreement.

A person is not eligible to enter into a debt agreement if:

  • Their after-tax income exceeds the threshold; or
  • The total amount of their unsecured creditors exceeds the threshold; or
  • The total value of their divisible property (the property that could be sold for the benefit of your creditors if you are declared bankrupt) exceeds the threshold.

The threshold limits have not been published above as they are adjusted every 6 months.

The eligibility criteria have been established to allow for debtors with smaller and less complex estates to come to a binding agreement with their creditors without the need to go bankrupt, or alternatively, where the costs of entering into a PIA would be cost prohibitive.

How does the debt agreement regime come into effect?

The process is a simplified version of the process adopted for a PIA.

A number of documents are submitted with AFSA to notify of the debtor’s intention to commence the process of entering into a debt agreement.

Certain notices are forwarded to creditors in relation to the proposal, and instead of a meeting of creditors, creditors are asked to return a voting form indicating if they wish for the debt agreement to be accepted or rejected.

If the majority in value of the votes returned before the cut off time vote in favour of the proposal, the debt agreement will come into effect.

The agreement will be binding on the unsecured creditors of the estate.

Having Insolvency Concerns?

Please contact KHR Insolvency for an obligation free consultation to discuss your circumstances.