Applying for a debt agreement
Lin is a 22 year old café manager in Melbourne. She earns about $50,000 a year. She’s single and rents an apartment in the city with a flatmate.
Lin owed a range of creditors about $35,000 including personal loans and credit cards. She owned a car and some household items, but she did not really have any assets she could sell to pay back her debts.
Lin had to pay for some major repairs to her car, so she missed some of her repayments. Her debt started to spiral out of control.
Lin spent a lot of time researching her options and spoke to a free financial counsellor. Lin wanted to pay back as much of her debts as possible. She decided that a debt agreement was the best option for her.
First, Lin confirmed she was eligible to apply:
- She was unable to pay her debts when they were due
- Her debts and assets were below the set amount*
- Her estimated after-tax income for the next 12 months was below the set amount*
- She had not been bankrupt, had a debt agreement or personal insolvency agreement in the last 10 years
She then met with a debt agreement administrator. They set out a plan to offer Lin’s creditors 65% of what she owed over a three year period. The administrator explained the fees to lodge the debt agreement proposal with AFSA, and the fees for the administrator to manage the agreement.
After making sure Lin could afford the proposal, the administrator lodged the proposal with AFSA and it was accepted. It was then sent to Lin’s creditors to vote. The majority of creditors accepted the proposal, and Lin’s debt agreement commenced.
The administrator is managing Lin’s debt agreement. Lin pays the administrator the agreed amount each month. The administrator takes out their fees, then pays Lin’s creditors. Lin doesn’t have to pay anyone else.
If Lin’s circumstances change in the future, her administrator may be able to help vary or terminate the debt agreement. Lin knows she must contact her debt agreement administrator as soon as her circumstances change.
* These amounts change twice a year. You can find the latest amounts at Indexed Amounts.
*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.