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Can I keep my house if I enter into a Debt Agreement?

By Administrator 02 August, 2013

Entering into a Debt Agreement will not always mean that you will have to sell your house, but there are some situations where you would need to sell it, which we will explain in this article.  There may also be circumstances where it may be more beneficial for you to surrender your house to your mortgagee and allow it to be sold. This is particularly the case if you owe significantly more on the mortgage than what the house is worth. If this is your situation, please read below for more information.

How does a DA affect my current mortgage?

If you wish to keep your house and your creditors have agreed to your Debt Agreement proposal, then most banks will not take any adverse action against you as the borrower as long as you continue to make the mortgage payments in the usual course.

What if I have equity in my property – will my creditors still agree to my proposal?

Having equity in your house again doesn’t always prevent you from entering into a Debt Agreement, unless the equity exceeds the amounts you owe your creditors or the equity exceeds the statutory thresholds.  Lets explore these two issues further:

  1. If the equity in your house exceeds the statutory threshold amount of $103,121.20 then you will no longer be able to propose a Debt Agreement and would need to consider a Personal Insolvency Agreement instead;
  2. If the equity exceeds the amounts you owe your creditors, then your creditors will most likely expect you to either:
    1. Refinance your mortgage to repay your debts; or
    2. Sell the house to repay them.

What if I owe more than what my house is worth?

If you owe more to the bank than what your house is worth, then you have 2 choices:

  1. If you want to keep your house that will usually be fine as long as you can afford to keep paying the mortgage. The bank would, however, be entitled to claims for dividends from your Debt Agreement for the “estimated shortfall”.  This may affect the estimated dividend to your unsecured creditors.
  2. If you don’t want to keep the house (due to the negative equity in it) then you should surrender it to the bank before entering into a Debt Agreement.  This way, you will be able to include any “actual shortfall” from the sale of the house in the Debt Agreement.  Going down this path will eliminate all of your debt and will allow you to start afresh.  Of course, many factors need to be taken into account before you would consider this (for example you would need to consider the property market generally – for example:
    1. are house prices going up or down?
    2. how much stamp duty and other costs would you lose if you sold?

Can I sell my house later?

If you wish to sell your house after you have entered into a Debt Agreement, then you are free to do so.  This flexibility is not available in bankruptcy.

Will my house be protected under the Debt Agreement?

Once you enter into a Debt Agreement you will be protected from any legal action by your unsecured creditors.  This means that they will be prevented from commencing any bankruptcy proceedings against you or obtaining any type of writ against your house. As long as you fully comply with your Debt Agreement (i.e. you make the payments as required) you will be legally protected.

This is one of the biggest advantages of entering into a Debt Agreement compared to bankruptcy.

If you have a house and want to protect the equity in it, then give us a call.  Debt Free Australia are industry leaders in personal insolvency services. We won’t charge any fee until we have fully assessed your case and have confirmed that a Debt Agreement is the best solution for you. Call us now on our toll free line 1800 676 598.