What is a Part 9 Debt Agreement?

You may be struggling with debt and finding it impossible to locate a lender willing to consolidate your debts.  You may be at a point where you are being continually harassed by your creditors.  There is a solution known as a debt agreement.

 While it is considered an act of bankruptcy, a debt agreement differs slightly from declaring bankruptcy.  It is a formal agreement where your debts are paid to your creditors via an administrator.  The biggest advantage of a debt agreement is that you propose and negotiate new terms to pay your debt back at a level that you can afford.

The debt agreement ends when you fulfil your obligations regarding the agreed repayment amount (or you breach the agreement, in which case you will most likely need to file for either bankruptcy or a Part X agreement – Personal Insolvency).

 

Who is eligible to enter a Part IX Debt Agreement?

The eligibility criteria to enter a debt agreement are as follows:

  • You cannot pay your debts when they fall due.
  • in the last 10 years you have not entered into a debt agreement or declared bankruptcy
  • Total unsecured debt is < $119,119.00.
  • After-tax income is < $89,339.25.
  • Your property value is < $238,238.00.

(figures are subjected to change)

 

What happens after the Part IX Debt Agreement Ends?

Most of your debts will be released and you will no longer need to pay them.  In some cases, a debt agreement does not release you from a debt, even when your obligations are complete. This means the creditor can still pursue you for any debt owing after the agreement ends.

You may need to confirm with the creditor to see whether they can still pursue you for the following debts:

  • debts you incur by fraud
  • child support debts
  • fines, penalties, and court-ordered payments

For more information on which debts may be pursued see this link:

https://www.afsa.gov.au/insolvency/cant-pay-my-debts/debt-comparison-table

 

What are the advantages to a Part IX Debt agreement?

A Part IX debt agreement is far more flexible than bankruptcy will allow you to have several options.  These can include:

  • agreeing with your creditor to pay less than the full amount of the debt that you owe,
  • proposing an affordable level of salary deductions to pay down the negotiated debt,
  • temporarily suspending the repayment of your debt, and
  • transferring some of your property to your creditor to offset your debt in full or in part.

 

What are the disadvantages of a Part IX debt agreement?

While a debt agreement is a temporary solution, there are still some consequences, which include:

  • your creditor may still make you bankrupt if the agreement is not accepted,
  • the debt agreement will remain on your credit file for 5 years from the date the agreement was made (sometimes it can be longer),
  • it will also appear on the National Personal Insolvency Index,
  • while still under the agreement, you must declare your debt agreement on future credit applications,
  • you may have to pay fees up to several thousand dollars to enter a debt agreement,
  • the debt agreement is automatically terminated if you have arrears that have not been repaid within 6 months, and
  • the creditor has the right to repossess your property if you’re entering a debt agreement for secured debts such as a house or car.

 

Can I refinance to pay out my Part IX Debt Agreement?

Yes.  If you have entered a debt agreement that has not ended there are lenders that will consider a refinance that will include repayment of the negotiated amount.  There will be a loading on the interest rate but having a discharged debt agreement can help you gain access to cheaper rates.

 

Are there alternatives to entering a Part IX Debt Agreement?

Yes, absolutely. 

Recall one of the eligibility criteria to enter a debt agreement is that you cannot make repayments when they are due.  If you can prove that you are in financial hardship, then there are debt negotiation services that will negotiate with your creditors to reduce the amount of unsecured debt you owe. 

Unsecured debt is debt that doesn’t have a security attached. 

In contrast, a mortgage and a car loan are secured debts because you are using the house and the car as security and offering this to the lender in case you default.  They can then sell the security to recoup their money.  You cannot reduce the amount you owe on these unless you do enter a formal debt agreement.

But your outstanding unsecured debt amount can be reduced without entering a formal agreement.  This includes your credit card debt or personal loans that aren’t backed by any security (such as a personal loan taken out for holidays for example).

 

Conclusion

A Part IX debt agreement is a potential solution when you are really struggling with your debt repayments.   It may be possible to reduce the amount of debt you owe and negotiate a payment plan that suits your circumstances.  However, there are some consequences including the impact it will have on your credit file for a time.  For people that qualify, an alternative solution might be to try and negotiate your debt without a formal debt agreement without the impact on your credit file.  Please contact us if you would like to find out more.