The 2022-23 financial year saw 4,117 Part IX (9) Debt Agreements lodged in Australia. This figure underscores the role of such agreements as an option for individuals seeking debt relief while aiming to avoid the ramifications of bankruptcy. Entering a Part IX Debt Agreement (Part 9 Debt Agreement) is a serious step and it is important to understand how this agreement works.
Some debt relief solutions in Australia come with consequences and restrictions. If you want to find a debt relief solution to improve your situation you should weigh up the pros and cons of each option. We have provided a summary of Debt Agreement consequences.
A Debt Agreement is a legally binding agreement between you and your creditors which outlines a new affordable payment schedule. In order for this to happen, your creditors agree to pause further interest payments, remove all fees and accept a percentage of each dollar owed to satisfy your debt. A Debt Agreement can only include unsecured debts and the majority of your creditors must agree to your proposal before it is put in place.
Most creditors are likely to accept your Debt Agreement proposal, especially if you are in genuine financial hardship. A Debt Agreement is an act of bankruptcy, but it doesn’t mean you are bankrupt. It will also help you avoid serious long-term consequences associated with bankruptcy.
The main consequences of a Debt Agreement are:
If you are experiencing severe financial hardship, you could already have defaults noted on your credit file. If this is the case, a Debt Agreement may be beneficial for you. However, it's important to understand how this agreement will affect your credit file.
Once a Debt Agreement is accepted, it will be recorded on your credit report as an "act of bankruptcy." This notation will typically remain on your credit file for five years from the date the agreement begins or for two years after the agreement ends, whichever is longer. During this time, the agreement can make it more difficult to obtain new credit, as lenders may see this as a sign of financial instability.
Although the agreement helps you repay your debts at an affordable rate, it’s essential to avoid taking on new debts during this period. Successfully completing the agreement and making all required repayments will lead to the removal of the notation from your credit file after the five-year period. At that point, you can quickly rebuild your credit profile.
Australian debtors and creditors will find protection and support in the Bankruptcy Act 1966. This Act provides a legislative framework which forms Debt Agreement and Bankruptcy processes. When you enter a Debt Agreement or Bankruptcy you are not only bound by law but also protected. This means that if creditors continue to harass you after you have entered an agreement, they are breaking the law. A Debt Agreement allows you to repay your debts without having to declare bankruptcy. Bankruptcy involves a number of consequences and obligations which restrict your way of life.
Below is a table which compares a Debt Agreement with the consequences of Bankruptcy.
| Debt Agreement | Bankruptcy | |
|---|---|---|
| Debts which can be included | There are set limits on the amount of debt which can be included. The value of unsecured debts cannot exceed the indexed amounts set out by AFSA. Only unsecured debts may be included in a Debt Agreement. Secured debt payments must be managed outside of your Debt Agreement payments. | Most debts can be included in Bankruptcy. This includes your secured debts, which could result in your assets and property being sold to assist in paying your creditors. |
| Earning capacity | A person cannot enter a Debt Agreement if their annual after-tax income is more than a set threshold. Once they have entered a Debt Agreement, there is no limit to the income earned. | A Bankrupt can only earn up to the indexed threshold. Once you exceed the threshold, 50 cents to every dollar will be contributed to the trustee and your creditors. |
| Operating a business | You are able to continue to be a director of a company and running your business, but you may have to disclose your Debt Agreement to others who deal with your business. | You cannot be a director of a company or be involved in its management without permission of the court. You may be able to operate a business while bankrupt but in some industries, you must disclose are bankrupt. |
| Can I own real estate/property? | Yes, as long as you maintain the minimum repayments on your mortgage you may own property while in a Debt Agreement. | No. You may not own property while you are bankrupt. However, there are ways you can keep your family home. |
| Vehicles | There is no restriction on the number or value of vehicles you own while you are in a Debt Agreement. | The value of the car you drive must not exceed an indexed amount set by AFSA. |
| Credit Rating | A Debt Agreement is noted on your credit file generally for 5 years as long as you keep up with repayments. After that, the Debt Agreement will be removed from your Credit File. | Bankruptcy is marked on your credit file for a minimum of 5 years. The period of Bankruptcy generally lasts for 3 years. It will remain on your credit file for the remaining 2 years noting you as a discharged bankrupt. Your period of bankruptcy may be extended up to 7 years by your trustee. |
| Travelling Overseas | There is no restriction of travelling overseas when you are in a Debt Agreement | You are able to travel overseas while you are Bankrupt, but you must apply for written permission from your Bankruptcy Trustee before you go. Each application will cost $150. |
Learn more about the differences between Bankruptcy and Debt Agreements.
Debt Agreement consequences only apply while you are in the agreement. There are no long-term consequences. In fact, if you are really struggling with debt, a Debt Agreement offers a simple and effective debt relief solution. A Debt Agreement won’t have an impact on your job, your wages, the assets you own, the car your drive or any property you own. It will simply provide you with an achievable action plan to repay your debts.
If you are struggling with debt, chances are you will know the horrible feeling in the pit of your stomach, the dread of answering your phone and the constant panic associated with opening the mail. Debt is not just a financial problem. It will manifest and cause problems with your relationships, family and health. So if someone told you about a solution which can remove your stress and angst while solving your debt problem, you might be quick to jump.
A Debt Agreement will stop creditors from harassing you! Once you engage our services, we become the point of contact for all your debts. That means your creditors will need to speak to your Case Manager and not you, about your debt.
Another benefit of a Debt Agreement is that your debts stop accruing any further interest during the agreement. It is common for Revive Financial negotiators to be able to whittle down the cost of your debts a little also, meaning you could pay less in the long run.
Although a Debt Agreement is an act of bankruptcy, you are not declaring bankruptcy. The restrictions and obligations that come with bankruptcy are not relevant to you, and you are free to live your life. Just make sure you keep up with those repayments!
If you need relief from debt but are not sure which solution suits you, give us a call! Revive Financial Case Managers take your situation into account and tailor the best solution for you. They will explain the benefits and consequences of a Debt Agreement so you can make an informed decision before proceeding. If you need to get out of debt, give us a call on 1800 534 534.
For more information on Debt Agreements and how they can help you find financial relief, check out our Debt Agreement page.