What is a Debt Agreement?

To understand how a Debt Agreement is different to Bankruptcy, we firstly need to explain “what is a Debt Agreement”.

A Debt Agreement is a formal repayment plan where you offer to repay as much as you can afford to repay (usually over a period of time) and your creditors formally agree to your proposal (in the form of a Debt Agreement Proposal which is drawn up by a Registered Debt Agreement Administrator). In our experience creditors will usually agree to receive less than what they are owed and any unpaid balances at the end of the Debt Agreement will be written off (i.e. extinguished).

What is a Bankruptcy?

Bankruptcy is a formal process when someone declares that they cannot repay their debts.  When one declares themself bankrupt (or becomes bankrupt through the courts) they will be required to surrender their assets (unless they are under the protected limits or are necessary household items).

As a bankrupt you will also be subject to restrictions like the following:

• You must surrender assets exceeding the protected limits;
• You must surrender your passport and you cannot travel overseas without permission from your Trustee;
• You will be subject to a yearly assessment of your income & you may become liable to pay compulsory contributions into your estate;
• You will be obliged to deliver up all of your books and records which will be thoroughly examined by your Trustee;
• Your Trustee may call a meeting of your creditors and may direct you to attend where you could be questioned;
• Your Trustee may publically examine you in open court;
• You cannot act as a company director whilst bankrupt;
• You have to give up any cash balances in your account exceeding $2,000 at the time that you become bankrupt;

How is a debt agreement different to bankruptcy?

A Debt Agreement will discharge from your unsecured debts after making a series of affordable payments (which your creditors will agreed to).  It will also allow you to escape many of the restrictions placed on people who become bankrupt.

Whilst subject to a Debt Agreement, there are no restrictions on:

• Travelling overseas;
• Your income will not be subject to a yearly review and you cannot become liable for compulsory income contributions;
• Your books & records will not be thoroughly examined;
• You will not need to attend any meeting of your creditors (all voting on your debt agreement is done by postal votes)
• You cannot be publically examined;
• You can act as a Company Director;
• You will not need to surrender any cash balances exceeding $2,000.

If you want more advice on a Debt Agreement call our friendly and professional debt consultants on 1800 653 485.