The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 was given Royal Assent on 27 September 2018. Background.

The commencement time for most of the Act’s provisions is nine months after Royal Assent.

Currently to be eligible to propose a debt agreement, unsecured debts and assets must be less than $114,478.00, and annual after-tax income must be less than $85,858.50

A debt agreement requires a debtor to negotiate with their creditors a percentage of the combined debt that can be repaid over a period of time (usually between three and five years); repayments are made to a debt agreement administrator; and once payments are complete and the agreement ends, creditors cannot recover any outstanding monies owed. 

Debt agreements are intended to offer a more flexible, less onerous and socially stigmatising alternative to bankruptcy.

The amendments

The Act amends the Bankruptcy Act provisions about debt agreements. It:

• sets stricter practice standards for debt agreement administrators (including compulsory registration), tougher penalties for wrongdoing and grants the Inspector-General additional investigative powers to address misconduct;
•  requires debt agreement administrators to hold and maintain professional indemnity and fidelity insurance as a requirement of registration and to be fit and proper persons;
•  expressly prohibits a debtor from self-administering their own debt agreement;
•  clarifies the types of expenses that debt agreement administrators can recover;
•  links debt agreement repayments to a specified percentage of income, with the percentage determined by legislative instrument. It will give additional functionality to the payment to income ratio formula so that it can better target low-income debtors. It will provide an option for debtors to propose payments that exceed the payment to income ratio percentage if the source of the debtor’s proposed payments is viable;
• limits the length of a debt agreement proposal to three years (in line with bankruptcy provisions) but will give debtors flexibility to vary their debt agreement to up to five years if they suffer a substantial and unforeseen change in circumstances that are likely to prevent them from completing the debt agreement. It will also enable debtors who own or have equity in their principal place of residence to propose a debt agreement length of up to five years and to exempt these debtors from the requirement to comply with the payment to income ratio;
•  doubles the current asset eligibility threshold to be eligible to propose a debt agreement;
• provides the Official Receiver with the ability to reject proposed debt agreements that would cause undue financial hardship to the debtor;
•  reduces the potential for conflicts of interest in the proposal, variation, and termination of debt agreements, and aligning offences with those applicable to bankruptcy trustees; and
• extends the possibility of voiding a debt agreement to the situation where a debt agreement administrator has breached conditions or duties.