The Pros and Cons of a Part IX (9) Debt Agreement

Part IX (9) Debt Agreements (Debt Agreement) continue to be a popular solution for people struggling financially.

Debt Agreements, as reported by the Australian Financial Security Authority, are frequently utilised by Australians as a means of managing overwhelming debt.

While they can be extremely effective, Debt Agreements may not be the best option for everyone. If you’re considering one, here we explain exactly what a debt agreement is, as well as run through the pros and cons, to help you make the right decision.

What is a Debt Agreement?

A Debt Agreement is a formal arrangement with creditors where you commit to pay a sum of money towards your debts over a set period of time (typically 3-5 years). It falls under Part IX (9) of the Bankruptcy Act 1966 and is arranged through a Registered Debt Agreement Administrator (DAA).

The payment amounts and repayment frequency in a Debt Agreement are determined based on what you can afford, with the guidance of a DAA, and then proposed to your creditors. Creditors then vote whether to accept or reject your proposal. If the majority (by value of debt) accept, all creditors are bound to the agreement whether they vote or not.

Debt Agreements are designed for individuals who meet specific income and debt thresholds. To find the most up-to-date income and debt limits for eligibility, click here. They are generally used for consumer debts including credit cards, personal loans and shortfalls on finance agreements.

Pros of a Debt Agreement

• Single Monthly Payment: Combine all your eligible debts into one easy-to-manage payment.
• Lower Repayments: Agree on an affordable repayment plan that fits your budget.
• Debt Reduction: Negotiate a reduced amount to repay, making it easier to clear your debts.
• Pause Interest: Future interest on your unsecured debts is paused, preventing further financial strain.
• Asset Protection: Unlike full bankruptcy, your assets are generally protected, helping you maintain stability.
• Shortened Repayment Period: Complete your repayments within a 3 to 5-year timeframe, freeing you from debt sooner.
• Creditor Relief: Alleviate creditor pressure and prevent legal action against you.
• Payment Administration: Revive Financial will administer all of the payments to your creditors on your behalf.
• Majority Approval: Not all creditors need to agree to your proposal. You only need the majority of creditors (50.1% by value) to agree for the Debt Agreement to be accepted.
• High Acceptance Rate: Our creditor acceptance rate for debt agreements is above 95%.

Cons of a Debt Agreement

• Credit File Impact: Your credit file rating will be affected for up to five years, which may limit your ability to incur further debt.  Where you complete the agreement (ends under S185N of the Bankruptcy Act), the agreement remains on the credit file & NPII until the longer of 5 years and 1 month from the day the agreement is made, or 1 month from the completion date.
• Professional Licenses: Certain professional licenses may be impacted, so it’s essential to understand the implications for your career.
• Compliance Requirements: If you don’t meet the terms of your Debt Agreement or make your payments in full and on time, the creditors are within their rights to seek termination of the agreement and recommence collection proceedings, legal action, or enforce bankruptcy.
• Exclusions: Not all debts can be included in a Debt Agreement. Secured debts (e.g., home loans and car loans) and some state debts (e.g., fines) cannot be included.
• Joint Debts: A Debt Agreement does not release another person from a joint debt.

Is a Debt Agreement Right for Me?

While a Debt Agreement may have numerous pros, including enabling you to manage your debts without the severe consequences of bankruptcy, they also have some potential downsides and demand a high level of commitment and ongoing financial stability.

A Debt Agreement can end up costing you more than bankruptcy due to your debt repayment obligations over 3 or 5 years. It also requires you to have sufficient income available to cover your living costs and debt agreement payments across the agreed time frame.

Because of this, deciding whether or not to commit to one is a personal decision that should be made based on the specifics of your situation. It’s also one that should not be taken lightly as a debt agreement can delay or worsen your financial hardship.

To help you make the right choice, we recommend speaking with one of our experts. We can help you weigh up whether a debt agreement is worthwhile and affordable for your situation, as well as advise you on the next steps in either case.

Keen to weigh up the options to manage your debts with a professional? Contact us today.

For more information on personal debt, check out our personal debt page here.