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Difference between Debt Agreement & Personal Insolvency Agreement

By Administrator 27 May, 2013

If you have been looking at potential solutions to help solve your debt problems, you may have come across the terms, Debt Agreement, and Personal Insolvency Agreement. Whilst there is plenty of information about both of these debt solutions, callers still get confused about the differences between them.

This page will hopefully clear that up.

Firstly the basic principles are the same, as they are both formal creditor arrangements and are regulated by the Bankruptcy Act. Whilst the arrangements are regulated by the Bankruptcy Act, they should not be confused with Bankruptcy. They are both formal agreements entered into with your creditors to settle your debts over a period of time. The decision as to which agreement to enter into comes down to your current debt levels, current income levels and the equity you have in your assets. The current amounts are as follows:

Debt Agreement
Income (after tax) Less than $83,169.45
Unsecured debts Less than $110,892.60
Equity in Assets Less than $110,892.60

 

These levels are also regulated by the Government and are adjusted every six months (in line with CPI movements).

If your finances are under these amounts, you are free to choose either agreement, but a Debt Agreement would make more sense because the set up fees are less and you can usually set one up quicker. If you exceed these amounts, you become ineligible for a Debt Agreement and can only then consider a Personal Insolvency Agreement.

However, if you are a couple (ie husband & wife) and want to settle your household debts in the one agreement then you are probably best to propose a joint Personal Insolvency Agreement. Joint Debt Agreements are not possible.

Other differences between the two options are best explained in the table below:

 

Debt Agreement
Personal Insolvency Agreement
How does the process begin? A Debt Agreement Administrator lodges your proposal with AFSA You appoint a Controlling Trustee to investigate your affairs and report to your creditors.
Who manages the voting process? AFSA Controlling Trustee
Do I have to do anything during the voting process? There is nothing else required of you during this time. You must give your Controlling Trustee any information they need, and attend a meeting either in person or via telephone.
Is there an advertisement regarding my proposal? No The details of the meeting mentioned above will be advertised on the AFSA website.
Who manages the Agreement once approved? Debt Agreement Administrator Registered Trustee (usually the same person as the Controlling Trustee)
What if I’ve been insolvent before? You must not have been bankrupt, proposed a personal insolvency agreement or made a debt agreement in the last 10 years. You must not have proposed another personal insolvency agreement in the last six months.
Can I still run my business? Yes, but if you are trading under a business name you will have to tell people that you are in a Debt Agreement. Yes, so long as the Agreement allows for it.
What if it is a company? You can still be the Director of a corporation. You cannot be a Director until you have complied with all of the terms of the Agreement.
Will my records be thoroughly examined? The main focus for the Debt Agreement Administrator will be on whether you can afford the repayments under the debt agreement. Yes, your Controlling Trustee must investigate bank statements for at least a six month period prior to the agreement.  The purpose of this is to identify any transactions which could be clawed back under bankruptcy (like a preference payment or a transaction to defeat creditors)
Will the agreement be registered on a database for public access Yes it will be recorded on the NPII but one must pay a search fee to access the information Yes it will be recorded on the NPII but one must pay a search fee to access the information
Can I travel overseas? Yes. Yes.

 

If you have debt problems which you would like assistance with solving, then contact Debt Free. We are the experts in the field of Debt Agreements and Personal Insolvency Agreements. We also offer a free assessment for anyone who would like to see if they are eligible for a Debt Agreement or a Personal Insolvency Agreement.

Call us today on 1800 676 598 to arrange a free debt assessment.