Frequently asked questions

If you'd like to read more about debt solutions then choose a link below, but please contact us after that. We'll explain how our services can help you and you won't be under any obligation. Debt Free never resorts to high pressure sales and we also give the best impartial advice.

You can also read more about different types of solutions in our "What we do" section.

Debt Agreement

1. What is a Debt Agreement?
A Debt Agreement is a legally binding agreement with your creditors which must first be approved by them. Usually you pay an agreed monthly sum for a period of 3 to 5 years and the interest on your debts is frozen at the time your agreement is accepted by your creditors. Your contributions are divided up between your creditors (less our fee which is approved by your creditors), who accept the sum in full and final settlement of the amount you owe them. In many cases this will be less than the total amount you currently owe and any difference will be written off. If you own your home or other assets you may choose to sell or re-mortgage these assets and pay one lump sum in full and final settlement under your debt agreement.

Once your debt agreement is approved by your creditors, it will protect you against any further legal action which they may have been entitled to take against you, which may have resulted in your Bankruptcy

2. So how much will I be required to pay?
The monthly payment depends on your income and expenditure, and is agreed with your creditors so that it is affordable to you. A direct debit will be set up and your first payment must be made within one month of your debt agreement being accepted.

3. What sorts of people enter into Debt Agreements?
Simply people who cannot pay their debts as they fall due. If you cannot pay your debts as they fall due, you are insolvent and the law gives you two alternatives - Bankruptcy or a Debt Agreement. You cannot propose a Debt Agreement if:

you have been a Bankrupt or entered a Debt Agreement within the last 10 years; or
your unsecured debts exceed $80,262; or
your assets that would be available under bankruptcy exceed $80,262; or
your income for the next 12 months is expected to exceed $60,196.50 (after tax) or $80,849 (before tax).

4. Are there any other options ?
You could get all of your creditors to reschedule your debts, but this may be difficult if you have a lot of creditors. Some banks and building societies have debt counsellors, and you could try speaking to them. Bear in mind that unlike a Debt Agreement, an informal arrangement offers no guarantees as one or more of your creditors could change their mind at a later date, or charge you higher rates of interest later. You may also take longer to finally clear your debt.

5. What are the advantages of a Debt Agreement?

We help you to calculate what you can afford, and you make just one payment to your client account by a direct debit each month. The payment amount is the same over the whole period of the Debt Agreement unless your circumstances change.
Once your Debt Agreement is approved, all of your creditors are legally bound by its terms, as long as you keep paying your agreed monthly sum.
Once the agreed term of your Debt Agreement is over (usually after 3 to 5 years) you have no further obligations to your creditors. At this point you stop paying the monthly sum, and can start afresh.
Your employment will probably not be affected. In fact, your employers will not know about your Debt Agreement unless you choose to tell them.

6. What do I need to do?
Before your Debt Agreement proposal is put to creditors you need to sign and declare that the contents of your proposal are true and correct. You also need to read the Prescribed Information Booklet (Download 365Kb) and sign an acknowledgement that you have read it. This booklet is published by the Insolvency and Trustee Service Australia. We will prepare all documentation for you after you have supplied the necessary information to us.

Your creditors will vote on your proposal by proxy. You will not need to attend any meetings of creditors (unlike Bankruptcy).

7. Will A Debt Agreement affect my credit rating?
Your Debt Agreement proposal will be recorded on the National Personal Insolvency Index register (forever). This register is maintained by the Insolvency and Trustee Service Australia. Your name will also be recorded on a commercial credit reference database for 7 years, after which time it will be deleted. In the future, this may affect your ability to obtain credit or may result in you paying a higher rate of interest to get credit.

8. What else should I know?
You might actually pay more under a Debt Agreement than you would if you were made Bankrupt. This is because you only become liable to pay compulsory income contributions after you earn $40,131 after tax (assuming you have no dependents). The voluntary increase in the total payments should make your creditors sympathetic towards your proposal. For other compulsory income contribution thresholds (if you have dependents) please visit the Insolvency and Trustee Service Australia website or use our income contribution calculator to find out if you would be liable to make compulsory income contributions under Bankruptcy.

9. Will my home be safe?
You will not usually have to sell your property when subject to a Debt Agreement (unless you choose to sell it or re-mortgage it to release funds for your Debt Agreement). If you choose to keep your house, you will of course need to keep your mortgage repayments up to date. Your house mortgage stands outside your Debt Agreement. Under Bankruptcy your Bankruptcy Trustee will need to take steps to sell your equity in the property, whether that be to your spouse or a third party.

10. What if my creditors don't agree?
At least 50% of votes (in value) must be in favour of your Debt Agreement proposal.

If your creditors don't vote in favour you will still have the option of an informal arrangement with your creditors. If your creditors don't accept your proposal and you cannot repay the debt, you may need to consider Bankruptcy.

11. Do I have to pay any costs?
You pay only the affordable monthly amount you agree to. This covers both your payment to the creditors and our fees (our fees will be approved by your creditors).

Bankruptcy

1. What is Bankruptcy?
Bankruptcy is a legal process for individuals who can not pay their debts as they fall due. Bankruptcy will last for 3 years (if you fail to truthfully disclose your financial position and to fully co-operate with your Bankruptcy Trustee this term may be extended for up to 8 years). At the end of your bankruptcy you will be released from the debts which you had incurred before you entered into Bankruptcy. You will not be released from debts which you may incur after you have been made bankrupt and some debts such as fines and child support survive your Bankruptcy (in other words you will not be released from these debts).

Your Bankruptcy Trustee will sell all of your assets except for the following assets which are protected:

Most ordinary but not luxury household and personal goods
Motor Vehicle (worth less than $6,500)*
Tools of Trade (worth less than $3,250)*
Superannuation (subject to limits)

*amount current as at April 2008

Whilst you are a Bankrupt, you may be subject to the following obligations/restrictions:

Any money in your bank account (at the time of your Bankruptcy) will be collected by your Trustee and your credit cards will be cancelled
You must complete a Statement of Affairs at the commencement of your Bankruptcy (the 3 year Bankruptcy term does not commence until you have completed your Statement of Affairs)
You cannot be a director of a company whilst you are bankrupt
You cannot incur debts of more than $4,623* without disclosing your bankruptcy
You must surrender your passport to your Bankruptcy Trustee and you cannot travel overseas without your Trustee's written consent
You may be liable to pay income contributions (subject to income contribution thresholds)
You must deliver all of your records to your Bankruptcy Trustee
You must keep your Bankruptcy Trustee fully informed as to your residential address and the income you earn
You must disclose to your Bankruptcy Trustee any assets which you may acquire during your bankruptcy
You may need to attend a meeting of your creditors
Your Bankruptcy Trustee may wish to examine you and people associated to you
Your Bankruptcy term may be extended for up to eight years (if you fail to co-operate with your Bankruptcy Trustee)

*amount current as at April 2008

2. Will I be liable for compulsory income contributions?
If you are made bankrupt you may be liable to make compulsory income contributions for the duration of your Bankruptcy (3 to 8 years). To enquire if you would be liable to make compulsory income contributions please complete the information on the income contribution calculator page.

Income Contribution Calculator

3. Can I end my Bankruptcy early?
Normally a Bankruptcy lasts for 3 years (assuming you fully co-operate with your Bankruptcy Trustee and have fully disclosed your circumstances in your Statement of Affairs). If you wish to bring your bankruptcy to an end earlier you can put forward a proposal to your creditors. Any early termination proposal would need to put your creditors in a better position than they would be if your bankruptcy continued (in other words they will receive a higher dividend under your early termination proposal than if your bankruptcy ran its complete course).

4. Can I declare myself Bankrupt?
Yes but before you decide to declare yourself Bankrupt, you should first call us to see if you can avoid Bankruptcy. If Bankruptcy is your only viable option we recommend that you first visit a financial counselor. A list of counselling services available are listed on the Insolvency and Trustee Service Australia website.

Mortgages and loans

1. Is a secured loan or refinance right for me?
This is down to individual choice, mortgage rates are usually lower and set up fees higher than those of loans because of the length of time involved and your home will be at risk in both cases if you cannot meet the repayments. Many financial institutions will only loan up to a certain percentage of what your property is worth. This percentage (known as the loan valuation ratio) is different from institution to institution.

2. Will a consolidation loan help me?
If you can consolidate all of your existing debts into one loan that offers lower total repayments (and a lower rate of interest) then a consolidation loan might be the best solution. This might not be possible in some cases as many people who are experiencing serious financial difficulties tend to have poor credit ratings; if this is the case then taking on more financial responsibility may make your situation worse.

3. How long does a refinance take?
Refinancing normally takes approximately 6 to 8 weeks but that will vary from institution to institution.

Regulation

1. Who are you regulated by?
Our Debt Administrators are qualified Chartered Accountants and are members of the Institute of Chartered Accountants in Australia and the Insolvency Practitioners Association of Australia. The Insolvency and Trustee Service Australia also regularly monitors and audits our Debt Agreements for strict compliance with the bankruptcy Act.