Part 9 Debt Agreements are one of Australia’s most successful debt resolution options, with more than 95% of creditors accepting proposals. These agreements represent a structured alternative to bankruptcy, relieving individuals who are experiencing financial difficulties.
The strength of Part 9 Debt Agreements lies in their ability to halt interest charges and additional fees on unsecured debts throughout the agreement period. Rather than create new debt through loans, these agreements establish legally binding terms between debtors and creditors, resulting in simplified payment arrangements.
Seeking professional advice is essential before proceeding, as these agreements can affect your credit rating for more than 5 years. At SV Partners, our experienced practitioners assess our clients’ circumstances to determine their suitability for Part 9 Debt Agreements.
Key Features of Debt Agreements
A Part 9 Debt Agreement freezes your unsecured debts when your proposal enters the National Personal Insolvency Index. Once the agreement starts, your creditors cannot take or continue legal action to collect the frozen debts.
Your circumstances determine how long your debt agreement will last. Homeowners, for example, can extend their agreement up to 5 years. The maximum duration drops to 3 years if you hold no legal or financial interest in your home.
Your agreement will need oversight from a registered debt agreement administrator like SV Partners. The administrator’s responsibilities include:
- Collecting your financial information
- Creating an affordable proposal for creditors
- Overseeing payments throughout the term
- Sending funds to creditors
How is it Different From Bankruptcy?
A debt agreement has several advantages over bankruptcy. For starters, you keep control of your assets instead of selling them to pay creditors. You can also keep running your business, but you must tell everyone you deal with about the debt agreement. The agreement becomes binding when most creditors have accepted your proposal, based on the value of debts owed. All creditors with provable debts must follow these terms once accepted, even those who voted against it.
Paying off all your obligations under the agreement releases you from most of the debts. However, the debt agreement stays on your credit report for 5 years from the start date or 2 years after it ends—whichever takes longer. In contrast, bankruptcy usually stays on your credit report for a fixed period of 5 years from the start date. Nevertheless, a debt agreement counts as an act of bankruptcy, and your creditors could force you into bankruptcy if they reject your proposal or the agreement ends early.
Who Can Apply for a Debt Agreement?
To qualify for a Part 9 Debt Agreement, you must meet certain financial criteria:
- Your after-tax income should not exceed $107,739.45
- Your available assets, after securing creditors, must be no more than $287,305.20
- The total owed to unsecured creditors cannot exceed $143,652.60
These limits ensure that unsecured creditors are owed no more than $143,652.60, and your combined available asset pool (income after tax and available assets) cannot exceed these thresholds.
Other Eligibility Criteria
Your eligibility depends on several other important factors:
- You must be insolvent and unable to pay your debts when they’re due
- The last 10 years should be free of bankruptcy, debt agreements or personal insolvency agreements
- A registered debt agreement administrator needs to confirm you can complete the agreement’s obligations
The administrator must check your financial situation before you submit a proposal. Your total payments under the agreement cannot exceed a set percentage of your income. This rule helps low-income debtors better manage their arrangements. Take time to think about these requirements and what they mean for your future before you move forward.
How a Debt Agreement Works
A registered debt agreement administrator will oversee your Part 9 Debt Agreement from start to finish. This setup ensures your payments get managed and distributed properly throughout the term.
Setting Up The Agreement
Your administrator helps you prepare three key documents:
- The debt agreement proposal
- An explanatory statement
- A statement of affairs
You need to submit these documents to the Official Receiver within 14 days after signing them. The Official Receiver then checks:
- Your eligibility for the agreement
- The administrator’s certification of affordability
- That the proposed arrangement does not cause undue hardship
After verification, your proposal goes to creditors for voting. The agreement becomes binding when creditors who hold at least 50% of your total debt value agree. Every creditor, even those who voted against it, must follow these terms.
Payment Structure
Instead of paying creditors directly, you will make regular payments to your debt agreement administrator once they accept. Your administrator then:
- Watches over your compliance with agreement terms
- Splits payments among creditors
- Handles ongoing administration
Most people pay for three years, but homeowners might need to extend this to five years. Your unsecured debts will not grow during this time because interest and charges stay frozen.
Remember that secured debts like mortgages or car loans cannot be part of the agreement. You will need to pay these separately along with your debt agreement payments. Your administrator needs to know how to handle both payment types when checking if you can afford the agreement.
Unexpected life changes might affect your payments during the agreement. You can ask to pay less or stretch out your payment term, as long as you do not exceed the maximum allowed time. However, missing payments for more than six months will end the agreement automatically. Creditors can then chase the original debt amounts plus any interest that would have built up.
Impact on Your Financial Future
A Part 9 Debt Agreement leaves a lasting mark on your financial future that continues even after you complete it. You should know everything about these agreements to make smart choices about your money.
Credit Report Effects
Your details will appear on the National Personal Insolvency Index (NPII) as soon as you sign a debt agreement and stay there for at least 5 years from the start date. The timeframe can stretch longer based on how your agreement ends:
- Completed agreements stay for 5 years or until you fulfil all obligations
- Terminated agreements remain visible for up to 7 years after termination
- Void agreements stay on record for 7 years after the void order
Your credit report retains this information for at least 5 years, which can limit your chances of getting new credit. Big banks and lenders often look at debt agreements with caution and might charge you higher interest rates later.
Asset Ownership
Debt agreements allow you to keep everything you own during the agreement. However, secured creditors can still take and sell any assets you used as security if you miss payments. The lender could still repossess your home if you default on your mortgage, even with a debt agreement in place.
Employment Restrictions
Debt agreements have fewer employment restrictions than bankruptcy, but some rules still apply:
- Professional organisations might set special membership rules
- Some jobs or trades could restrict your work during the agreement
- Business owners must tell others about their debt agreement when using a business name
You must tell potential creditors about your debt agreement whenever you try to borrow more than $10,794.67. This rule applies throughout your agreement and affects everything from running a business to getting personal loans.
Get Out of Debt with SV Partners
Part 9 Debt Agreements are a great way for Australians who struggle with overwhelming debt to find relief. Nowhere near as harsh as bankruptcy, they give you breathing space with frozen interest rates and combined payments rather than dealing with aggressive collection tactics.
Debt agreements work best when you understand them fully and stick to your repayment plan. As a Registered Trustee with years of experience in helping individuals and corporate clients through financial strain, SV Partners can walk you through all available options.
Contact us today to make an appointment, or call us on 1800 246 801 to arrange a confidential consultation about a personal insolvency agreement.