The proposed debt contract contains a summary of your financial affairs as well as your proposal to settle your debts. The GDR must certify that the proposal is sustainable and affordable. Once the proposal is submitted to AFSA, AFSA will forward the proposal to your creditors and they will have 20 working days to vote on it. For the proposal to be adopted, creditors who hold 50% of the value of the debt must give their consent. For example, if you have a $100,000 debt, creditors who hold $50,000 must agree. Debt contracts are regulated by the Australian Financial Security Authority, known as AFSA. For more information on debt contracts, bankruptcy contracts and private insolvency contracts, visit the AFSA website at www.afsa.gov.au. This debt must be included in your debt contract. However, the surety is not released from the debt, and if you stop paying the creditor, it is likely that he will sue the person under the guarantee. Bankruptcy usually lasts only 3 years (although it can be increased to 5 or 8 years in certain circumstances) and you only have to pay income contributions (payments on your debt) if you exceed a certain threshold (see www.afsa.gov.au and select the current amounts). It is quite common for debtors to be forced to stop paying their creditors and pay pre-feeding costs. Keep in mind that there is no guarantee that your creditors will say yes to the proposed debt agreements, and if you stop paying, you may find yourself in a less favourable position.
As a general rule, you will not be offered a refund of the administration fees paid if the proposal is rejected. Only unsecured debts can be included in a debt contract, so they would generally include credit cards, private loans, memory cards or a possible deficit on an old secured debt. The first relevant date is the processing date, the date on which AFSA accepts your debt contract for processing and sends it to the creditors who will be put to the vote. 35 days from that date or 42 days, when the proposed debt contract is processed in December, is the last day of the vote. This date is called the deadline. My observation over the years is that time itself can become a problem. I call it the grind factor. The bankruptcy lasts 3 years, but many debt contracts are concluded for a period of 5 years. I think a debt agreement should not last more than three years (the same as a bankruptcy).
This “crushing factor” problem is eliminated if the debt agreement is not put in place to ensure that the basic needs of the debtor and the debtors` family can be met. I am concerned that the debt agreement will provide a first relief and become increasingly difficult, as the burden of repaying past debts will pass in the years to come. That is why I recommend that the deadline for a debt agreement should not be longer than three years. My observation is that commitment exhausts people. When the “grind factor” takes place, it can bring the person and family back to stress, health, emotional, relational and child problems, exactly the things that the debt agreement should avoid! This money is used to pay off your debts (depending on administrative and fee costs). If the amount paid into your debt contract is less than what you currently owe, the debt balance will be depreciated (after successfully concluding your agreement).