When it comes to personal debt management, there is a lot of confusion about what exactly your options are as a consumer. A lot of people assume if they find themselves in significant financial hardship bankruptcy may be their only option. However, there are other options available to the everyday Australian’s, one of the most popular being a Part 9 Debt Agreement, or a Debt Agreement as they are most commonly referred to.
Every year approximately 10,000 Australians enter into Part 9 Debt Agreements as a way of getting their debts back under control. More and more a Debt Agreement is being seen as the best way to get out of debt without having to declare bankruptcy.
What is a Part 9 Debt Agreement?
In simple terms a Part 9 Debt Agreement is a legally binding agreement under Part 9 of the Bankruptcy Act 1966 between a debtor (you) and the people you owe money to. Under a Part 9 Debt Agreement, your creditors agree to accept a sum of money you can afford to repay, this amount may be less then what you currently owe. You pay off your debt over an agreed amount of time, and all interest fees and charges are stopped once your Debt Agreement has been accepted by your creditors.
Whilst a viable alternative to declaring bankruptcy it is important to note that proposing a Debt Agreement is viewed as an act of bankruptcy, however you have agreed to pay your creditors and some of the important conditions of bankruptcy do not apply to you.
Does a Part 9 Debt Agreement affect my credit score?
Entering into a Debt Agreement, does affect your credit score for 5 years, unless your Debt Agreement is longer, and you will appear on the National Personal Insolvency Index (NPII) for a period of 5 years. During this time you will have significant difficulties accessing further credit or loans. If you were to declare bankruptcy, your name would appear on the NPII for life.
You may have heard that if you undertake a Debt Agreement you will be placed on the NPII for life. The Federal Government are enacting changes to the legislation this month to bring it down to a 5 year period.
Am I eligible for a Part 9 Debt Agreement?
There are strict eligibility criteria for Debt Agreements, as they are Government legislated. In order to be eligible you must meet the following criteria:
- not have been bankrupt or had a Debt Agreement in the last 10 years
- have unsecured debts of less than $108,162.60,
- not have more than $108,162.60 of equity within a property or other assets
- Have an after tax income of less than $81,121.95
If you do not meet these eligibility criteria there are a number of other Personal Insolvency solutions available to you other than bankruptcy. If you give our consultant a call on 1300 887 211 or visit our Debt Solutions page, you may be able to find the best solution for you there.
What are the positives of entering into a Debt Agreement?
As with any personal insolvency solutions there are a number of positives and negatives. A number of positives to a Debt Agreement includes:
- You are not declaring full bankruptcy, this means you can continue to:
- Practice in most professions without restriction
- Are not on the NPII for Life
- Are not subject to strict travel restrictions
- Are not obligated to report any increase in salary, increasing your debt repayments
- At the end of the agreement all unsecured debts included in the agreement are paid in full
- You only make one regular repayment towards all your unsecured debts
- All interest is frozen on your current debts
- All Debt Collectors must cease contacting you under law
- All pending legal action in relation to your debts is automatically stopped
- You have the ability to pay extra to finish your Debt Agreement sooner
What are the negatives to a Debt Agreement?
Some of the negatives to entering into a Debt Agreement include:
- Your credit rating is affected for a minimum of 5 years
- You are listed on the NPII for a minimum 5 years
- You will have difficulty accessing any new forms of credit for the life of your Debt Agreement, including:
- Personal loans
- Credit Cards
- Car Loans
Part 9 Debt Agreements are a real solution if you are having trouble repaying all of your debts and don’t want to declare bankruptcy. If you are considering this option make sure to obtain financial advice so you can be sure this is the right option for you. Contact Debt Cutter on 1300 887 211 if you want to discuss your options today.
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Elise is passionate about finance, and is on a mission to explore and share different tactics for tackling the everyday financial challenges in realistic and achievable ways. With a background in communications, digital marketing, and public relations, Elise uses her skills to generate new ideas and content to help make finance fun.