Have you heard about Part 9 Debt Agreements recently and are curious to know more? Well, read on as I’ve attempted to answer most of the common questions that we receive about this type of debt agreement.
A Part 9 Debt Agreement is also known as a debt agreement, and you may also have seen it written as a Part IX Debt Agreement (this means the same thing as Part 9 but in roman numerals). Put simply, a debt agreement is a formal arrangement between you and your creditors (who you owe money to) to settle your debt without needing to declare bankruptcy. It is a legally binding agreement between you and your creditors, which requires you to repay a negotiated percentage or portion of your debt that you can afford, over an agreed period of time, usually 3 or 5 years. Once you have completed the payments and the agreement ends, your creditors can’t recover the rest of the money you owe for that specific debt.
The “Part 9” in the debt agreement refers to Part IX (9) of the Bankruptcy Act 1966 under which the debt agreement is administered. People with unmanageable debts can consider debt agreements as a flexible way to come to an arrangement to settle debts without becoming bankrupt.
Am I eligible for a debt agreement?
The following conditions determine your eligibility for a debt agreement:
- You must be insolvent (unable to pay your debts when they are due)
- Your unsecured debts and your assets must be under the limits* specified by the Australian Financial Security Authority (AFSA).
- Your unsecured debts and estimated after-tax income for the next 12 months must be below the limits* specified by the AFSA.
- You must have not been bankrupt and had not entered into a debt agreement or personal insolvency agreement in the past 10 years.
*these amounts change twice a year, you can find the latest on the AFSA website here.
How do debt agreements work?
If you meet AFSA’s eligibility criteria (above) and you want to enter into a debt agreement, you need to appoint a registered debt agreement administrator, who will submit a proposal on your behalf.
The debt agreement administer will help you prepare a debt agreement proposal based on what you can afford to pay back over a defined period of time. If your creditors agree to your proposal, it then becomes a debt agreement.
You then pay your debt administrator the agreed amount (for example every month), the administrator takes out their fees, then pays your creditors.
Once you’ve paid in full the agreed amount and your agreement ends, you’ve paid those debt and your creditors can’t recover any further outstanding money owed under that debt.
Are there debt agreement fees?
There are normally a number of fees associated with proposing and administering a Part 9 Debt Agreement. Whilst they can vary between debt administrators, they invariably include the following, make sure that you are fully aware of what fees are involved before deciding to go ahead.
- Debt agreement lodgement fee – this is a fee charged by AFSA for lodging each debt agreement proposal. At the time of writing this blog it was fixed at $200, but may change. Most debt agreement administrators include this fee under their set-up fees.
- A Set-up fee: The set-up fee varies and depends on the debt agreement administrator you engage and relates to the cost of putting your proposal together and submitting it to AFSA.
- Administration fee: This is a fee that your debt agreement administrator will charge for administering your agreement if, and once it’s accepted by your creditors. It is usually deducted from your periodic repayments. You don’t have to pay any additional amount on account of the administration fee.
- Realisation charge: Lastly, the AFSA levies a 7% realisation charge for funding costs of conducting investigations, carrying out enquiries, regulating administrators, and monitoring trustees. The realisation charges are also recovered from the periodic repayment amount specified in the agreement.
Part 9 Debt Agreements cover what types of loans?
Part 9 Debt Agreements cover only your unsecured loans, such as credit cards, personal loans, medical bills, and store cards. If you have acquired any secured loans, such as a car loan or a mortgage, you will have to pay them to lenders directly.
What are my other options?
Formal debt solutions have been developed and implemented by the Australian Government under the Bankruptcy Act 1966, to provide options for people who find themselves in situations where the debt they carry becomes unmanageable. However, like a debt agreement, these options can have serious consequences, including for example, your ability to get credit. So, it is important that you fully understand what you are agreeing to before signing up to them.
Your formal debt solution options are:
- Personal Insolvency Agreement– A Personal Insolvency Agreement (or a Part X (10) Agreement) is a formal, legally binding arrangement that is between you and your creditors to satisfy certain debts. The arrangement could consist of a contribution of your income over a period of time or an assignment of your assets. It is the last option considered before filing for bankruptcy.
- Bankruptcy– Bankruptcy is the formal process of being declared unable to pay your debts. When you become bankrupt, you don’t have to pay most of the debts you owe. However, bankruptcy may have a serious impact on you. It may affect your ability to get credit, travel overseas or gain some types of employment, so it is important to fully understand the consequences to you specifically before entering bankruptcy. For this process you can also take help from a trusted bankruptcy advisers.
You can also apply for Temporary Debt Protection (TDP) under the Bankruptcy Act 1966. This option provides you with a 21-day protection period from being pursued by unsecured creditors while you seek help and decide how to proceed.
There are also a number of informal debt solutions that might be more appropriate for your specific situation. I encourage you to get in touch with us for an obligation free chat so we can recommend a personalised debt solution that most suits your specific circumstances, before you sign anything.
What are the consequences of a debt agreement?
Once you’ve signed a debt agreement:
- A Part 9 Debt Agreement will remain on your credit report for 5 years, or longer in some cases
- It may be difficult to access more credit while it is recorded on your credit report
- Your name will appear on the National Personal Insolvency Index (NPII) for a period of time – The amount of time your debt agreement appears on the NPII]will vary depending on your circumstances, and how your agreement ends
- If you trade under a business name that isn’t your own, you must tell people you do business with that you’re in a debt agreement.
How is the Part 9 Debt Agreement different to the Personal Insolvency Agreement?
If your unsecured debts, assets, or income are above the eligibility criteria for the Part 9 Debt Agreement specified by the AFSA, you can apply for a Personal Insolvency Agreement (PIA). Here is some ways a Personal Insolvency Agreement differs from a Part 9 Debt Agreement:
- There are no unsecured debts, assets or income eligibility requirements under a PIA.
- You must not have proposed another PIA within the previous six months.
- In a PIA a trustee is appointed for taking control of your debt instead of a debt agreement administrator.
- Repayment terms of the PIA can include repayments in instalments or a single lump sum payment.
- Repayment length is more flexible in PIA and can be negotiated between the debtor, trustee, and creditors.
- The PIA details can stay on the NPII permanently.
- You are debarred from holding the office of the director of the company if you have opted for the PIA until you’ve complied with all of the terms of the agreement, and you’re discharged.
Can I get new loans after getting into a debt agreement?
Yes, you can apply for new loans while you are in a debt agreement or have completed your debt agreement. However, you need to disclose it to your prospective lender, so it may be harder to get credit or you might be required to pay a higher interest rate. Lenders will most likely review your application on a case-to-case basis, and some might even reject your application if they find it too risky to lend you money.
How does a debt agreement impact my credit report?
A debt agreement remains on your credit report for 5 years. Then, as long as it is settled, it will be removed. Even if you pay it out sooner, it will only be noted as completed until the five-year period is up. Below is an example of how this is reported on your Equifax Apply credit report.
How does a debt agreement impact my credit score?
While you are in a debt agreement, your credit score is severely impacted, and it will be harder to get credit. Below is an example of how your credit score may be reported in an Equifax Apply credit report.
Is debt agreement a suitable alternative to bankruptcy?
Both a Part 9 Debt Agreement and Bankruptcy will stop creditors from harassing you. However, both have serious consequences. Bankruptcy will certainly remove much of the financial burden you face, but it will also severely impact your life and possibly your future as well, as it has many long-term, restrictive consequences. So it is important to fully understand the pros and cons of bankruptcy specifically before entering bankruptcy. A debt agreement will have you paying back your debt over a number of years, but the repayments are more affordable, and your financial future will recover more quickly once it has ended.
Which way to go really depends on your unique situation. Importantly, you should make sure you’ve exhausted other less impacting options before considering which one would be best for you.
If you aren’t sure which is the best debt solution is for you, contact Fix Bad Credit for an obligation free chat. We will take the time to get to know you and your specific situation before recommending a personalised solution to your debt. You can call us on 1300 406 172.
