Part 9 Debt Agreement Consequences
Learn about Part 9 Debt Agreement Consequences so you can make an informed decision.
If you are struggling with debt, you will know all too well about the horrible feeling you get in the pit of your stomach. The constant ache that is associated with the panic of opening the mail to find another bill, the dread of answering your phone and the stress of living without until pay day.
Debt is not just a financial problem. It can manifest in your life and cause problems with your relationships, family and health. So when someone tells you about a solution which can take away all the stress and angst from your life while solving your debt problem, you would be quick to jump.
A Part 9 Debt Agreement can be a saving grace for someone who is struggling with their debt. Once in place it reduces your debt to an amount you can afford, freezes your interest and gets your creditors off your back. A Part 9 Debt Agreement allows you to repay your debts in peace and free from stress.
In 2014, 10,911 Part 9 Debt Agreements were lodged in Australia, proving they are an increasingly popular way to repay your debt and avoid bankruptcy. However not everyone is convinced a Part 9 Debt Agreement is the best way out of debt.
Each debt relief solution in Australia comes hand in hand with a number of consequences and restrictions. Some are worse than others, but here is no magic wand to wave to get out of debt unscathed. If you are hoping to find a debt relief solution to help you improve your situation you should weigh up the pros and cons of each solution.
What is a Part 9 Debt Agreement?
Before you look into the consequences of a Part 9 Debt Agreement, you need to understand exactly what one is and how it works.
A Part 9 Debt Agreement is a legally binding agreement between you and your creditors which outlines a new payment schedule, one which you can afford. In order for this to happen your creditors agree to freeze further interest payments, remove all fees and accept a percentage of each dollar owed to satisfy your debt. A Part 9 Debt Agreement can only include unsecured debts and the majority of your creditors must agree to your proposal before it is put in place.
Because you are making an attempt to repay your debt, most creditors are likely to accept your Part 9 Debt Agreement proposal, especially if you are in genuine financial hardship.
A Part 9 Debt Agreement is an act of bankruptcy, but it doesn’t mean you are bankrupt. In fact a Part 9 Debt Agreement will help you avoid all the serious long term consequences associated with bankruptcy.
The following table will help you compare Part 9 Debt Agreement consequences with bankruptcy consequences. As you can see, a Part 9 Debt Agreement is a much softer option than declaring bankruptcy.
Part 9 Debt Agreement Consequences
|Debts which can be included||There are set limits on the amount of debt which can be included. The value of unsecured debts can not exceed an indexed amount set out by AFSA. Only unsecured debts may be covered by a Debt Agreement.||Most debts can be included in Bankruptcy. Debts which are excluded form Bankruptcy include:
|Earning capacity||There is no restriction on how much you can earn while you are in a Debt Agreement. Although to enter a Debt Agreement, you need an income enough to cover your everyday living expenses and your Debt Agreement amount.||A person who is bankrupt can not earn over an indexed amount set out by AFSA.|
|Operating a business||You may be able to operate a business while under a Debt Agreement but in some industries you must disclose you have entered a Debt Agreement.||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 you declared bankruptcy.|
|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. A secured mortgage can’t be included in a Debt Agreement so you must maintain repayments on your mortgage in addition to your Debt Agreement repayment.||No. You may not own property while you are bankrupt. However there are ways you can keep your family home. For more information, watch this video.|
|Vehicles||There is no restriction on the number or value of vehicles you own while you are in a Debt Agreement. Secured vehicle loans can not be included in a Debt Agreement so you must maintain the minimum repayments in addition to your Debt Agreement repayments.||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 for 5 years. Unless you take longer to repay your Agreement, in which case it will remain on your credit file until it has been repaid.||Your Bankruptcy is marked on your credit file for a minimum of 5 years. The period of Bankruptcy 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.|
|Other Assets||A debtor can’t enter into a debt if their assets exceed a set threshold.||Standard household effects allowed, must notify trustee of any change in assets held|
|Traveling 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.|
How will it impact my credit file?
From the table, you can see that a Part 9 Debt Agreement will only impact your credit file for 5 years. In Australia, when you enter into an act of insolvency, such as a Part 9 Debt Agreement, your name is placed on the National Personal Insolvency Index. It used to be the case that once your name was on the Index, it would remain there for life. However, the Bankruptcy Act has recently changed and once your Debt Agreement has been completed (after 5 years) your name is removed from the Index.
Your Debt Agreement will also drop off your credit file five years from the commencement date OR once it has been repaid (whichever occurs latest). Which means if you maintain the repayments of your Part 9 Debt Agreement and repay it over 5 years, the Debt Agreement will drop off your credit file when you finish repaying it. By maintaining your debts, your credit score will improve over days, weeks and months and you should be able to borrow money again in no time.
Are there any long term consequences?
Most consequences of a Part 9 Debt Agreement occur while you are actually in the Debt Agreement. It is recommended you don’t try to borrow any more money, as the Debt Agreement will leave you with enough money to live comfortably with the remainder going towards your debts. Adding another loan to the mix doesn’t make sense.
A Part 9 Debt Agreement won’t have an impact on your job, your wages, the assets you own, the car your drive or the house you live in. There are thresholds in place to enter a Debt Agreement and you need to earn within a certain amount and have debts within a certain amount. You can view these thresholds at the AFSA Website.
What should I do?
If you need help with your debts but aren’t sure which debt relief solution best suits you, give us a call! Debt Rescue Case Managers will take the time to get to know you and your situation so they can recommend the best solution for you. They can go through the Part 9 Debt Agreement consequences with you can make an informed decision before proceeding with a solution. You can fill in the contact form on the side of the page or give us a call on 1800 00 3328.