Case Study 1 – Income Contributor
Luke is a construction project manager in Brisbane on an after tax salary of $80,000, with a six year old daughter.
Luke has a Rav4 valued at $23,000 with a payout of $18,000 to Toyota Finance.
Luke also has a personal loan and credit cards totalling $350,000 and an outstanding HECS account of $12,000.
Luke has no alternative but to consider Bankruptcy as he does not meet the Debt Agreement thresholds.
As Luke has one dependent he would be required to make income contributions from his income to his estate, in the amount of $7,705.46 per year. As the equity in the RAV4 is below the current threshold, providing Luke continues to make the payments to Toyota Finance he is able to retain the vehicle.
While Luke still has to contribute to his estate, this amount is significantly less than that would be required to be repaid to pay creditors in full. However, the amount outstanding in respect to Luke’s HECS debt is not included in the bankruptcy and would still need to be paid.
Case Study 2 – Debt Agreement
Michelle works in retail in Adelaide and earns a net income of $590 per week.
Michelle has no other assets other than a property with an estimated equity of $65,000 and credit cards totalling $100,000.
As Michelle is below the relevant thresholds, she is eligible to propose a Debt Agreement to her creditors as an alternative to bankruptcy. As part of the proposal, Michelle proposes that the full amount of the equity in the property becomes available to creditors for sale and upon sale of the property.
Creditors subsequently vote in favour of Michelle’s proposal and she subsequently enters into a Debt Agreement. Michelle continues to market the property and upon sale of the property, directs the entire equity to be forwarded to the Debt Agreement Administrator.
After taking into account realisation costs and the Debt Agreement Administrator’s costs, creditors received an amount of approximately $47,760 in payment of their outstanding accounts.
Michelle was subsequently released from her Debt Agreement within two months of its execution and avoided bankruptcy.