# 6.7.3.70 Waiver of Debt in Relation to Settlements

## Summary

SSAct section 1237AAB(1) mandates waiver in respect of settlements in civil actions.

SSAct section 1237AAB(2) mandates waiver in respect of settlements in AAT matters.

Where the amount of the settlement is less than the full amount of the debt, the difference between the debt and the amount of the settlement is waived under SSAct sections 1237AAB(1) or (2).

**Act reference:** SSAct section 1237AAB Waiver in relation to settlements

## 80% of the debt already recovered

Centrelink must waive recovery of up to 20% of the original value of the debt if the debtor:

- has repaid at least 80% of the original value of the debt, and
- is unable to repay the remaining balance (see example).

**Example:** Michael has a debt of $10,000. He has $8,500 in a bank account, but is unemployed with low job prospects. Recovery of his debt by deduction from his ongoing FTB entitlement would take a number of years. Michael offers to repay $8,500 in satisfaction of the debt. Centrelink agrees to settle the debt, and waives recovery of the remaining balance of $1,500.

**Act reference:** SSAct section 1237AAB(3) Waiver where at least 80% of debt recovered and debtor cannot pay more

## Repayment of present value

Centrelink may agree to settle a debt for less than the unpaid amount of the debt if:

- the debtor cannot repay more than the agreed amount, and
- it would take at least a year to recover the unpaid amount using another method of recovery.

Centrelink must waive the difference between the agreed amount and the unpaid amount of the debt.

The rest of this topic provides information about calculating the present value of the debt.

**Act reference:** SSAct section 1237AAB(4) Agreement for part-payment in satisfaction of outstanding debt, section 1237AAB(5) Limits on agreement to accept part-payment in satisfaction of outstanding debt

## Working out the present value of the debt

The present value of the unpaid amount of a debt is worked out using the following formula:

Present value = (Annual repayment ÷ interest) × (1 - (1 ÷ (1 + interest)^{repayment period}))

The annual repayment is the amount of the debt that would have been recovered in a year if it were not being waived. The interest rate is declared by the Minister in a disallowable instrument. The interest rate is currently 5% per annum. The repayment period, expressed in years, is the number of annual repayments required to repay the unpaid amount.

**Example:** Stuart had a debt of $15,000. He has already repaid $3,000 leaving an unpaid amount of $12,000. Stuart offers to make a lump sum repayment of $8,200, and shows he is unable to repay more. Centrelink works out that the annual repayment of the debt is $1,300 per year based on a repayment of $50 per fortnight. The repayment period works out to 9.23 years.

The present value of the debt is worked out as follows:

Present value = (Annual repayment ÷ interest) × (1 - (1 ÷ (1 + interest)^{repayment period}))

= ($1,300 ÷ 0.1) × (1 - (1 ÷ 1.1^{9.23}))

- = $13,000 × (1 - 0.4149)
- = $13,000 × 0.585
- = $7,606

As the amount offered to settle the debt is more than the present value of the debt, Centrelink agrees to accept the lump sum in full satisfaction of the debt. Recovery of the remaining $3,800 is waived.

**Act reference:** SSAct section 1237AAB(6) Formula for working out present value of unpaid amount

Social Services Laws (Present Value of Unpaid Amount - Interest Rate) Determination 2018