Tuesday, October 30, 2018 - Posted by Michael McCulloch
The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 received Royal Assent on Thursday, 27 September 2018 with a majority of the amendments commencing on Thursday, 27 June 2019.
The reforms have been passed in an attempt at tighter regulation and greater protections for people entering into Debt Agreement Proposals (DAPs). The Bill was passed in with several key amendments including:
- the prevention of a debtor from giving AFSA a DAP if the total proposed payments exceed the debtor's yearly after-tax income by a prescribed percentage;
- doubling the current assets eligibility threshold from $113,350 to $226,700. This is in response to the growing value of the Australian property market and will allow more debtors to enter into DAPs that were previously not eligble owing to the lower asset eligibility threshold;
- limiting the length of DAPs (in line with the current bankruptcy provisions) to 3 years however allowing debtors the flexibility to vary the DAP to a maximum of 5 years if there is unforeseen circumstances that are likely to prevent them from completing the DAP;
- allowing debtors who own or have equity in their principal place of residence to propose a DAP up to 5 years and to exempt those debtors from the requirement to comply with the payment to income ratio;
- providing the Official Receiver with the ability to reject a DAP that would cause undue financial hardship to the debtor;
- the setting of stricter practice standards for Debt Agreement administrators including compulsory registration; and
- the requirement for Debt Agreement Administrators to hold and maintain Professional Indemnity and Fidelity Insurances as a requirement for registration.
In a media release to the public Attorney-General, Christian Porter, said, "Debt agreements are an important and increasingly popular alternative to bankruptcy for individuals who are facing financial difficulty. But, over time, it had become clear that aspects of the debt agreement framework and some in the industry were putting financially vulnerable people at risk of entering into agreements which were not affordable – further compounding financial stress. The Coalition's reforms not only protect the interests of debtors and creditors by ensuring that debt agreements are reasonable and sustainable, but it will also improve professional standards in the debt agreement administrator industry. Debt agreement administrators deal with some of the most vulnerable people in our community, and the Bill professionalises the industry to reflect its important function."