Part 9 Debt agreement Discharge: What to expect once the agreement is over
A Part 9 Debt Agreement discharge is your ticket to start rebuilding your financial life. Your debts are repaid, you have a clean financial slate and you are positioned to start fresh. Here is what you need to know once the Part 9 Debt Agreement is over.
Entering a Part 9 Debt Agreement
A Part 9 Debt Agreement is a great solution for people experiencing bad debt. It can save you hundreds of dollars in debt repayments each week, get the creditors off your back and allow you to repay your debt on your own terms.
Typical lengths of a Debt Agreement
A Debt Agreement generally lasts for 5 years. In certain circumstances it can be reduced or extended depending on the situation. When you enter a Part 9 Debt Agreement, it is noted on your credit file and your name is listed on the National Personal Insolvency Index.
With no missed repayments, your Debt Agreement should drop off your credit file after 5 years (regardless of if you pay your Debt Agreement out early). Within one month and 1 day of being discharged, or after 5 years (whichever occurs last), your name will also be removed from the NPII.
Your Credit File
As mentioned above, if all goes to plan and your Debt Agreement finishes after 5 years, the end of your agreement will coincide with it dropping off your credit file and your name being removed from the NPII. Leaving you with a clean slate to rebuild your finances.
Immediately after your Debt Agreement Discharge, you might find your credit score to be quite low. This can be due to a number of things, but most likely, it will improve quickly in the coming months.
A lack of activity
When you are in a Debt Agreement, we discourage you from seeking any further finance as you need to focus on repaying the debt you already have. It can also be difficult to find a lender willing to lend you money. Unfortunately this leaves you with a blank credit history for 5 years. A lack of activity on your credit score could contribute to your bad credit score as banks like to see how well you can handle your finances.
If this seems to be the case for you, start small. Use a loan calculator to figure out how much you can afford to repay over 3-5 years and apply for a small loan with repayments in line with what you can afford. Make sure you make a repayment (more than the minimum) each week, on time and in full. You will have the loan paid off in no time and by managing the repayments you are improving your credit file. Once your credit file improves, you can apply for a larger loan and with a better score, you are more likely to secure a better interest rate.
Secured Debts cannot be included in a Part 9 Debt Agreement and you would have had to maintain the repayments on these debts outside the agreement. Doing so would contribute to your credit score and leave you in a better position after your debt agreement discharge. Failing to maintain the repayments on your secured debts not only puts a default on your credit file, but also puts you at risk of losing the asset the loan is secured against, such as your car or home.
A Part 9 Debt Agreement Discharge means the debts which were included in the agreement have now been settled. Your creditors will no longer seek compensation for these debts. The only debts you may have to continue paying after your Debt Agreement are debts to the commonwealth, such as Centrelink Debts, Debts incurred by fraud, Child support, Fines, penalties or other court-ordered payments, Student HECS, HELP, Student Financial Supplement Scheme debts. It would have been discussed with you when you entered the Debt Agreement if you need to continue to repay these debts once the Debt Agreement has finished. If you aren’t sure, double check with your Debt Agreement Administrator.
Hitting Financial Hardship
After a Part 9 Debt Agreement discharge, people tend to develop better money management and budgeting skills, acutely aware of the pain and stress financial hardship can cause. So once the Debt Agreement is over they make better financial decisions, don’t over commit and go on to live a financially successful life, whether it be owning their own home, or staying out of debt.
Sometimes, through no fault of their own, someone who has successfully repaid a Part 9 Debt Agreement will fall into financial hardship again. If this happens, the same services and solutions aren’t available, limiting your options to get out of debt. You cannot enter a Part 9 Debt Agreement if you have been Bankrupt or in a debt Agreement in the previous 10 years. So you must have been discharged from your Bankruptcy or Debt Agreement more than 10 years ago before you can enter into a new Debt Agreement.
Breaking a Debt Agreement Early
The process of entering a Part 9 Debt Agreement ensures you aren’t overcommitting yourself. Your Debt agreement Administrator will work through your everyday expenses to ensure all your essential needs are affordable. Once this is done, they will be left with a surplus amount to offer your creditors in lieu of your debts.
If you feel as though your Debt Agreement repayments are unaffordable or your circumstances change and you can no longer pay your debts, you must speak to your Debt Agreement Administrator immediately. There is an option to renegotiate with your creditors, even if it is only for a short period. Doing so could extend the life of your Debt Agreement. However if you can’t make your repayments ongoing and stop making the repayments, you break the legally binding agreement.
Your creditors are within their rights to reinstate the original debt including fees and interest and pursue you for full payment, often leaving you with the only option of declaring Bankruptcy.
After a Part 9 Debt Agreement Discharge is over, you are in a position where you can start fresh and continue on a debt free path. If you want to keep control of your finances, the best thing to do is organise some sort of budget for your household. By keeping track of your money and your debt you will know your limits and avoid overcommitting yourself.