A Debt Agreement is designed to be a way to help you clear yourself of debt without going bankrupt, by proposing a legally binding payment arrangement which offers your creditors a certain percentage of their debt (without interest) in full and final settlement. Not all debts are covered by a Debt Agreement, though, so you should ensure that all, or most, of your particular debts are going to be cleared by one before deciding to put one forward.
For a debt to be covered by a Debt Agreement, it needs to be what is called a “provable debt”. Provable debts are those debts that would be cleared if you were to go bankrupt. The first stipulation is that it must be unsecured, so straight away you can include credit cards, and personal loans that do not have an asset attached to them that would be sold if you were to stop paying. If you were to try to include a car loan or a mortgage in a Debt Agreement, the secured creditor would still be able to sell the vehicle or property (respectively). If there were an amount left over after selling the asset, that amount would now technically be “unsecured”, and that can be included in the Debt Agreement. Tax debts with the Australian Taxation Office are provable, but you must remember that you will not be legally released from that debt until you have completed your Agreement. This means that if you receive a tax return during the term of your Agreement, it will be held by the ATO and applied to your debt with them.
Non-provable debts include certain types of fines, child support, victim’s compensation claims, and HECS/FEE-HELP debts. You should note, though, that there is a difference between a HECS/FEE-HELP debt and one that is now due to the ATO – remember, ATO debts are provable. If your income has remained under the threshold for repayments to a tertiary education debt, the ATO will not have paid any of it for you, and so it remains non-provable. If, however, your income has exceeded the threshold, the ATO will have made payments for you. If you have not been paying extra tax to cover this, an amount will now be due to them, and that can be included in a Debt Agreement.
If you are considering entering into a Debt Agreement and you have other debts besides credit cards and personal loans, you should discuss your situation first with a Registered Debt Agreement Administrator. They will be able to tell you exactly what can be covered by a Debt Agreement, and whether or not your unique circumstances warrant entering into one. Call us here at the Debt Agreement Advice Centre for thorough and impartial advice on all matters relating to Debt Agreement proposals. Calls are free if you call from a land line. Call now on 1800 653 485.
