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Comprehensive reform of the debt agreement system

Media Release

The Turnbull Government has today introduced legislation to reform debt agreements to help more people avoid personal bankruptcy and provide greater protection for debtors and creditors.

The Bankruptcy Legislation Amendment (Debt Agreement Reform) Bill 2018 is the first comprehensive overhaul of Australia’s debt agreement system in a decade.

Debt agreements are an important and popular alternative to bankruptcy for individuals who are facing financial difficulties.

The number of new debt agreements has almost doubled in the last decade while bankruptcies have significantly reduced.

Debt agreements give people time to clear their debts and get back on their financial feet while avoiding the formal process of bankruptcy and its potential longer-term impact on their financial circumstances.

The reforms we are introducing this week will ensure debt agreements are based on an affordable payment schedule by linking repayments to a certain percentage of income. The percentage will be determined in consultation with key industry bodies, consumer groups and creditor representatives.

Other key measures include:

  • Limiting the length of a debt agreement proposal to three years, allowing debtors to manage their debts in the short term and work towards a fresh start, while maintaining flexibility to allow extensions if debts remain unpaid.
  • Doubling the current asset eligibility threshold (from $111,675.20 to $223,350.40) in recognition of the growing value of Australia’s property market, opening up the debt agreement option to more people who are facing financial difficulty.
  • Providing the Official Receiver in Bankruptcy the ability to reject proposed debt agreements which would cause undue financial hardship to the debtor.
  • Deterring unscrupulous practices by a small minority of debt agreement administrators by setting stricter practice standards; tougher penalties for wrongdoing (such as a new three month period of imprisonment if an administrator offers a creditor money with a view to influencing their vote) and granting the Inspector-General in Bankruptcy additional investigative powers to address misconduct.
  • Ensuring greater professionalism into the industry by requiring debt agreement administrators to hold and maintain professional indemnity and fidelity insurance as a requirement of registration.

Currently unregistered administrators will have a year register as an administrator or trustee if they wish to continue administering debt agreements.

These proposed reforms will commence six months after the Bill passes Parliament, giving the debt agreement industry time to prepare for the reforms.

This legislation will make the debt agreement system fairer and more efficient for debtors and creditors alike, and will protect people who are in a vulnerable financial position from financial exploitation.

The Bill is already being considered by the Senate Legal and Constitutional Affairs Committee, which is due to report by 19 March 2018.

Further information:

Between 2007 and 2017, new debt agreements increased from 6,560 to 14,639 per year. During the same period bankruptcies (personal insolvency) declined from 25,754 to 16,378.

Snapshot of the number of people entering into new debt agreements October-December 2017 State/Territory Number of debt agreement debtors
NSW 1,084
ACT 58
VIC 625
QLD 959
SA 167
NT 51
WA 472
TAS 78
Other 6
Total 3,500

Note: The proportional breakdown by state reflects the general breakdown (i.e. Qld and NSW with the highest number of debt agreements).