I'm having trouble paying my debt agreement

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I'm having trouble paying my debt agreement

If you are unable to keep up with the terms of your debt agreement you could consider:

  • Varying (changing) your agreement.
  • Terminating (cancelling) your agreement.

For both of these options, your debt agreement administrator needs to submit a proposal to your creditors.

Also be aware that if you don’t comply with the terms of your agreement, e.g. you don't make the agreed payments:

  • We or your creditors may vary or terminate the agreement if you don’t make payments for 6 months.
  • This can result in creditors being able to take action to recover your debts.

Vary your debt agreement

If you want to continue with the agreement, talk to your administrator about a variation proposal. You can use this option if your circumstances have changed, and you can't make your agreed payments. For example:

  • you lose your job
  • your household expenses have increased
  • you have an additional dependant to support.

If you would like to do this, talk to your administrator to help you with this process. They need to submit forms with us for your creditors to vote on. Creditors vote on a variation proposal in the same way they vote on the original proposal to set up the debt agreement.

Debt agreements lodged from 27 June 2019

If your original debt agreement was lodged on or after 27 June 2019, your variation proposal must meet certain requirements such as:

  • Your proposed payments must meet a payment to income ratio to make sure you can comfortably make your payments. If you own or have equity in your home you may be exempt from this. For more information see Indexed Amounts.
  • The total length of your agreement must not be longer than three years (unless you own your home or if you have a substantial and unforeseen change in circumstances).

If your creditors don't accept you proposal, the terms of the original debt agreement remain.

A creditor (including your administrator in some circumstances) may also submit a variation proposal.

For more information see: Official Receiver Practice Statement 11 - Debt agreements

Case study: Ashley

Varying a debt agreement

Ashley is a 32-year-old self-employed Training Consultant from Belconnen ACT. They are married to Michael, and they are expecting their first baby in the next few months. Michael and Ashley have a mortgage over their home.

A year and a half ago, Ashley lost their job and was no longer able to meet repayments on a personal loan. They entered a four-year debt agreement with their creditors. They were able to propose a longer time period than the normal three years because they were a homeowner.

At the time, a new baby was not planned for and has been a surprise addition to the family.

The family income will drop while Ashley takes maternity leave, and they will not be able to maintain their current debt agreement repayments. They want to continue with the debt agreement but would like to reduce the monthly repayments and extend the time period.

They plan to work from home two days a week when the baby is a couple of months old. This will mean they have some income from which to offer reduced payments to their creditors.

Ashley contacts their debt agreement administrator. The administrator advises that Ashley can propose to vary their debt agreement to five years from the original date. The fortnightly repayments will reduce as the agreement is now for a longer period. They are able to use the variation option because their circumstances have changed, and they can no longer make their agreed payments.

The administrator prepares a variation proposal with Ashley and submits it to AFSA. The administrator confirms that they are likely to be able to meet the new repayments and complete the debt agreement under the new terms.

The varied proposal is sent to Ashley’s creditors to vote. The majority of creditors accept the variation proposal, and the varied agreement comes into effect.

Ashley is pleased that they didn’t need to end their debt agreement just because their circumstances had unexpectedly changed. If they maintains the debt agreement payments, they will get to keep their house!

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice, if necessary, before taking any action.

Terminate your debt agreement

If your circumstances change and you want to end the agreement, talk to your debt agreement administrator about a termination proposal.

They need to submit forms with us for your creditors to vote on and if:

  • The majority in value vote yes, the agreement will terminate and you will be liable to pay the debts.
  • They don’t accept your proposal, the terms of the current agreement continue.

We, or your creditors can also apply to terminate your debt agreement.

Note: If you are going to apply for bankruptcy you must first terminate your debt agreement.

Automatic termination

Your agreement automatically terminates if you:

  • fail to make payments for 6 months after a payment is due or
  • don’t complete your payments within 6 months of the agreement end date.

If this happens, your administrator lodges forms with us to terminate the agreement.

Effects of terminating a debt agreement:

  • Creditors can commence or continue recovery for the payment of debts that you owe (including interest).
  • Creditors can apply to make you bankrupt through court.
  • Information about your debt agreement will remain on the National Personal Insolvency Index (NPII) for a limited time.

For more information see: Official Receiver Practice Statement 11 - Debt agreements

Case study: Jai

Terminating a debt agreement

Jai lives with his partner of 10 years and their two young children in a rental property in Perth. They have no assets other than household furniture, personal belongings and a jointly owned car worth $7,000.

Jai spent his early 20s working in the mines in WA earning a very good wage. He resigned when his first child was born, and got a job as a factory hand, earning much less. Jai started to find it difficult to maintain repayments on his bills.

He saw an advert on TV about debt agreements and called to talk about his options. The debt agreement administrator suggested a debt agreement would work well for Jai’s situation. He entered into an agreement to pay back 80% of his debts over a three-year period.

Eighteen months into the debt agreement, Jai was still struggling financially. He found it difficult to maintain the payments to his debt agreement administrator. His relationship began to suffer and he had to take time off work due to the stress.

After seeing a free financial counsellor, Jai decided it would be best to terminate his debt agreement and file for bankruptcy.

He contacted his administrator who prepared the termination paperwork and lodged it with AFSA. AFSA completed the process to terminate the debt agreement.

Jai then applied for bankruptcy. AFSA wrote to his creditors to tell them that he had become bankrupt.

Jai now knows more about both debt agreements and bankruptcy. He went into a debt agreement with good intentions but can now see that bankruptcy is the best option for him and his family.

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.