Temporary debt protection (TDP) is an informal alternative to other insolvency arrangements such as bankruptcy, debt agreements and personal insolvency agreements. TDP isn’t a permanent solution – temporary debt protection is only active for six months and it’s recommended that in this time, a person explores whether formal options are better suited to them.
Who is eligible for temporary debt protection?
Generally, any person who has a debt that they cannot pay, will be eligible for temporary debt protection. Some restrictions do apply: the Australian Financial Security Authority prevents those people who already applied successfully for TDP in the last 12 months from aplying again. In addition, those who are in active debt agreements or personal insolvency agreements will also be ineligible, as will people who have been served with a Creditor’s Petition.
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How to apply for temporary debt protection
The Australian Financial Security Authority accepts applications via an online form. Alternatively, a person may also request a paper form. You can access more details on how to apply here.
What protections does temporary debt protection offer?
After successfully lodging a TDP application, a creditor must not actively engage in seeking recovery from a person who has been granted protection. This protection will last six months. It is important to note that this extends only to unsecured debts, meaning that secured creditors can continue to recover debt.
A TDP means that unsecured creditors will not be able to take enforcement action to recover debts, seize property or garnish wages for the entire six month period. After the six month period ends, so do the protections. Then, creditors can continue to seek legal action to enforce the recovery of debt. Importantly, you will not be automatically bankrupt after TDP ends.
How does it compare to other options?
Temporary debt protection is like a delaying tactic. It gives time for a person to plan their next steps in relation to insolvency. Between the formal options (bankruptcy, debt agreements and personal insolvency agreements), there will be differing requirements and consequences. Some of these options may restrict availability only to business owners. Likewise, some options may outline whether a person is allowed to own assets.
How is debt treated?
Under all of the formal options and under TDP, a secured creditor’s rights will not be affected. They may enforce their right to seek recovery if a debt has not been paid. Bankruptcy will allow for pro-rata payments to unsecured creditors, following the order of priority. A debt agreement will allow for all unsecured creditors to receive pro-rata payments. Personal insolvency agreements are different in that unsecured creditors receive differing payments based on what is set in that agreement. This is the largest difference with temporary debt protection. TDP allows for a pause of enforcement actions by unsecured creditors altogether.
Next steps
If you have found yourself in debt and are struggling to repay it, contact a debt management lawyer who can assist you.
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