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Posted by Revive Financial on May 22, 2024 10:26:06 AM

If you’re experiencing financial distress, a Part 9 Debt Agreement allows you to combine your debts into one affordable repayment based on your budget. A Debt Agreement puts a stop to creditor harassment, reduces debt stress, and allows you to rebuild your finances. However, it’s important to understand the eligibility criteria and the types of debts that can be included in a Part 9 Debt Agreement.

For a debt to be included in a Debt Agreement, it needs to be a ‘provable debt’. As defined by the Australian Financial Security Authority (AFSA), a provable debt is one that entitles the creditor to participate in dividends paid in the bankrupt estate. In other words, provable debts are those that would be cleared if you were to go bankrupt.

When deciding if a Debt Agreement is the right solution, it’s important to note a Debt Agreement is considered an Act of Bankruptcy under the Bankruptcy Act 1966. It carries with it consequences and restrictions and therefore should only be entered into if you are experiencing extreme financial hardship and are considered insolvent, meaning you are unable to pay your debts as they fall due.

Unsecured Debts

What is an Unsecured Debt?

Unsecured debts are a type of debt that is not protected by a guarantor or secured by an asset. This means that if you fall behind on your repayments, the creditor cannot claim assets for the debt. However, creditors may sell the debt to a debt collector or ask the court to garnish your wages.

What Unsecured Debts does a Debt Agreement Cover?

A Debt Agreement covers most unsecured debts, such as:

  • Credit and store cards,
  • Unsecured personal loans and payday loans,
  • Utility bills such as gas, electricity, phone and internet (disconnected supplies or from a previous address you occupied),
  • Overdrawn bank accounts and unpaid rent, and
  • Medical, legal and accounting fees.

In some cases, in a Debt Agreement you may be liable to pay:

  • Court fines,
  • Student loans such as HECS, HELP and SFSS,
  • Traffic infringement fines,
  • Council fines,
  • Council rates (if you still own the property),
  • Debts incurred through crime, and
  • Debts incurred after the date of your Debt Agreement proposal.

You may need to confirm with your creditor to see if they can still pursue you for:

  • Debts you incur by fraud (Centrelink debts),
  • Child support debts (arrears may be included but not ongoing obligations),
  • Fines, penalties and court-ordered payments, and
  • Overseas debts.


Secured Debts

What is a Secured Debt?

Secured debts are secured by an asset, such as a house, car or an item you are renting to buy. The asset serves as collateral for the debt. If you were to default on your repayments, the creditor has the right to repossess the asset, sell it and keep the proceeds to repay the debt you owe.

If you are experiencing financial hardship and struggling to repay your secured debts, you may be able the surrender the asset to your creditor before involuntary repossession occurs.

How does a Secured Debt Work in a Part 9 Debt Agreement?

In a Debt Agreement, creditors agree to accept an amount of money that you can afford to pay, over a set period (generally 3 to 5 years) to settle your debts.
If you took out a secured debt on a car for $25,000, defaulted on your repayments and had the car repossessed, the creditor may only be able to sell the car for $10,000. All fees that may be required to sell the car, such as fees applied by the creditor, debt collectors, car towing and auction house are included meaning the selling price of the car may be considerably less. The shortfall owing would then be assessed to determine if it could be included as an additional unsecured debt in a Debt Agreement.
If your assets have not yet been surrendered or repossessed, you can keep them by continuing to repay your secured creditors outside of the Debt Agreement.

Joint Debts

What are Joint Debts?

Joint debts are when you borrow money/obtain funds with someone else, such as your spouse. This occurs when:

  • Both parties apply for and sign a loan agreement as co-borrowers, or
  • One party co-signs or guarantees payment of another person’s debt.

A joint debt means both parties are equally responsible for the repayments. If one party fails to meet repayment obligations, a creditor will look at the other party for full payment of the debt.
In a Part 9 Debt Agreement, joint debts can be included. However, a creditor still has the right to pursue the other party for the full monthly repayment amount unless both parties enter a Debt Agreement. Only the party who is in the Debt Agreement is protected.

Australian Taxation Office (ATO) Debts

Certain ATO debts can be included in a Part 9 Debt Agreement. Individual and partnership debts can be included, however company ATO debts can’t. Upon lodgement of any income tax return/BAS statement which results in a refund, this will firstly be used to offset any of your tax debt. Only once the debt has been repaid will you receive a refund.

Rescue Your Finances with a Debt Agreement

Put debt worries behind you with a Part 9 Debt Agreement at Revive Financial. We’ll help negotiate a lower, affordable payment with your creditors based on what you can afford. Harassing phone calls will stop and you’ll be able to get back to what matters most. Get in touch with our debt experts today for a free debt analysis on 1800 534 534.

Topics: Debt Agreements, Personal Debt

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