Debt Agreements

A Part 9 Debt Agreement offers you an option to have one affordable repayment towards your unsecured debts. All Debt Agreements are tailored around affordability.

With a Debt Agreement:

• the interest on your unsecured debts included in the agreement are paused whilst you are making the repayments and will stay that way provided you discharge your obligations of the agreement
• you negotiate with your creditors to pay a percentage of your combined debt, based on what you can afford, over an agreed period of time
• you make one regular repayment either weekly, fortnightly, or monthly
• you make your repayments to a Debt Agreement administrator, such as Debt Negotiators, instead of paying your creditors individually
• a portion of your debt may be legally written off by your creditors

Once you’ve completed your payments, the agreement will end. Your creditors cannot try to recover the rest of the money you owe.

A Debt Agreement is not an agreement to borrow money or a consolidation loan and cannot release you from all types of debts. There are some debts you’ll still need to pay.

Debt Negotiators are experienced administrators and can help negotiate Debt Agreements on your behalf and can help you identify whether this is the right debt solution for you.

Both Part 9 and Part 10 Debt Agreements are ways of dealing with debt and both are a step before declaring bankruptcy. However, they come with different eligibility requirements, terms and consequences.

A Part 9 Debt Agreement, simply referred to as a Debt Agreement, is a legally binding agreement (arranged by a third party called a Debt Agreement Administrator) between you and your creditors. In a Debt Agreement, you pay a percentage of your combined unsecured debt through your Debt Agreement Administrator. A Debt Agreement usually lasts between three and five years.

A Part 10 Debt Agreement, also called a Personal Insolvency Agreement or PIA, is a legally binding agreement (administered by a trustee) between you and your creditors. In a PIA, your trustee takes control of your property and offers to pay your creditors all or part of your debt in an instalment or lump sum. The length of the agreement depends on the individual agreement, and it usually ends once your final payment has been made.

A Debt Agreement helps you deal with unmanageable unsecured debts. It will pause your provable unsecured debts (and interest), and allow you to repay those debts over an extended period of time in an affordable and practical way.

A Part 9 Debt Agreement will only affect your provable unsecured debts (and interest).

An unsecured debt is a debt which is not backed by collateral or an asset, in other words, they have NO security attached to them. Examples of unsecured debts are credit card debt, personal loans, bills, or tax debts. A Home Loan or a Car Loan are NOT unsecured debts as they are backed by an asset.

A Debt Agreement is designed as an alternative to Bankruptcy that may protect your assets. As long as you keep up with your asset repayments, such as your car and home loan, as well as your Debt Agreement repayments, your assets should generally be protected. A Debt Agreement only includes provable unsecured debts.

You may be eligible to make a Debt Agreement proposal if you meet the following eligibility criteria:

• You can’t pay your debts when they are due
• You haven’t been bankrupt, filed for a previous debt agreement or an insolvency agreement  in the past ten years
• Your after-tax income, unsecured debts and assets are less than the prescribed threshold limit for the next 12 months.

A debt agreement can:

• pause your interest on unsecured debts
• prevent further legal action against your unsecured debt
• enable you to be released from your unsecured debt once the agreed payments have been made
• enable you to make affordable repayments, reducing further damage from your debt

When you enter into a debt agreement, you negotiate with your creditors to pay a percentage of your debt based on what you can afford over time (often within three to five years).

You will make your monthly repayments to your debt agreement administrator instead of paying the individual creditors, and once you’ve completed payment and the agreement ends, your unsecured creditors cannot try and recover the rest of the money that was originally owed.

Although entering into a Debt Agreement has some benefits, it also has some consequences to be aware of.

• Entering into a Debt Agreement will be recorded on your credit file for a minimum of five years or until you’ve completed your obligations under the terms of the debt agreement if it takes longer than five years. This will affect your ability to obtain future credit, for example, getting a car loan.
• Your name will also be listed on the National Personal Insolvency Index (NPII), which is a public record.
• Entering into a Debt Agreement is considered an Act of Bankruptcy.
• You’ll need to disclose to creditors that you are in a Debt Agreement when you apply for credit.
• You can’t carry on a business under an assumed name without disclosing to all the people you deal with that you are party to a Debt Agreement.
• If your Debt Agreement is accepted, you’ll be required to make regular payments over an extended period of time, and you will need to stick to your budget.

Debt Negotiators recommends you explore all your options before entering into a Part IX Debt Agreement which ensures you’ve made the right decision and that a Debt Agreement is an appropriate option for you.

Before you enter into a Debt Agreement we recommended you:

• speak to your creditors and attempt to organise a payment arrangement, or make a hardship application to reduce your minimum monthly payment to make repaying your debts more affordable.
• speak to a free Financial Counselling Service. Find out more about Financial Counsellors and their locations.
• sell unused assets of value and offer this to creditors as a possible lump sum payment to settle the outstanding debt.

When debt is becoming too much to handle, and you’re struggling to keep up with your repayments, a debt agreement might be a suitable option. Many people turn to bankruptcy when they’re struggling with debt. While bankruptcy is an option that can clear your debt, it’s not the only option; Debt Negotiators will provide you with information regarding the best debt solution options available based on your circumstances.

Debt Negotiators can help you to come to a debt agreement with your creditors, finding you a solution that enables you to avoid bankruptcy. We can assist you in entering into informal and formal Debt Agreements, including Part 9/Part IX Debt Agreements.

If you enter into a debt agreement, you’ll be able to make periodic payments, or lump sum payments, in a way that suits you, and your debt will often be reduced to an agreed amount.

Wile Debt Agreements still have negative financial implications; they can be a better alternative to declaring bankruptcy. However, Debt Agreements are a solution that should only be considered in times of extreme debt. Debt Negotiators can help you to reach a debt agreement, and settle your debt with creditors. Contact us today for advice, or to arrange a consultation.

A Part IX Debt Agreement is based on affordability and sustainability. If you have decided to enter into a Part IX Debt Agreement, a Registered Debt Agreement Administrator will need to formally submit your Debt Agreement documents to the Australian Financial Security Authority (AFSA). The costs and amount of time needed to complete Debt Agreement depends on your individual situation. To have a better understanding of a Part IX Debt Agreement give us a call on 1300 351 008.

Your credit rating, or credit score, evaluates your creditworthiness based on a number of factors which take into account:

• the amount of debt you are currently carrying
• the frequency of your credit applications
• your ability to manage debt based on your payment history.

A Debt Agreement will be reported on your credit file, and will typically stay on your credit file for at least five years. A Debt Agreement isn’t a decision you should take lightly and you’ll need to make sure you comply with the terms. If you renege on a Debt Agreement, your creditors can petition the court to require you to declare bankruptcy.

A Debt Agreement will typically stay on your credit file for a minimum of five years from the agreement start date. In some instances, this may be longer and can affect your ability to get credit.

There are other debt relief solutions available to you, depending on your circumstances. You can also consider;

• Debt Consolidation
• An Informal Agreement
• A Personal Insolvency Agreement (PIA), also known as a Part 10 Agreement
• Or filing for Bankruptcy as your last resort.

Debt Negotiators offers free financial advice to help you review your options and identify a tailored solution to suit your current personal financial circumstances.

You will need to disclose all your debts, both secured and unsecured, any leases, hire purchases and any rentals. A Debt Agreement will only deal with the provable unsecured debts.

You will also need to disclose all income that you receive such as your paid employment, any Centrelink or Child Support that you receive, any income you receive from investments and any interest earned.

The process of entering into a Debt Agreement is:

1. First, make sure that this is the right solution for you. To do this, we recommend you seek independent financial advice. Debt Negotiators offers free impartial financial advice to help you identify what debt relief solutions are available for your personal financial circumstances.
2. Once you’ve identified that a Debt Agreement is right for you, and you understand the process and consequences, you’ll need to find a practising registered Debt Agreement administrator to help you create a Debt Agreement Proposal.When choosing a Debt Agreement administrator, look for one that:
   1. will make a fair offer to your creditors
   2. is experienced in dealing with all the major Australian lenders
   3. has the experience and knowledge needed to accurately assess your eligibility and explain any pitfalls and consequences.
      Debt Negotiators is a registered Debt Agreement administrator, registration number 1403, with the Australian Financial Security Authority (AFSA). We are therefore able to assist you in the development of your Debt Agreement proposal.
3. You will need to make sure you read and understand the prescribed information about the consequences of Debt Agreements, bankruptcy and the alternative of dealing with your debts.
4. Your Debt Agreement proposal is lodged with AFSA (Australian Financial Security Authority; a government department) within 14 days of you signing the contract. AFSA then sends it on to your creditors for voting.
5. Creditors vote on your proposal within 35 days of AFSA accepting the proposal. The proposal will become a Debt Agreement if more than 50% of the dollar value, the majority, of your creditors vote yes. AFSA will check and count the votes and will notify you of the outcome in writing.

A Debt Agreement involves the preparation of Debt Agreement documentation, which must be submitted to the Australian Financial Security Administrator (AFSA) by your Registered Debt Agreement Administrator. For the Debt Agreement to be approved, more than 50% of your creditors (in dollar value) must vote in favour of the agreement. The length of time required to complete this process will depend entirely on your individual circumstances. To better understand whether a Part IX Debt Agreement is the best option for you, call us on 1300 351 008.

Your Debt Agreement Proposal will be accepted if the majority of the creditors (in dollar value) vote in favour of your proposal. In other words, more than 50% of the creditors in dollar value vote ‘yes’ for your Debt Agreement proposal.

No, AFSA can reject your proposal if:

• they believe that a Debt Agreement is not in your best interest
• they believe it is not in your creditors’ best interest
• or if they find you ineligible to lodge a Debt Agreement.

If your Debt Agreement is accepted by your creditors, then all your unsecured creditors will be bound by the Debt Agreement.

This means any (or intended) collection action or legal action with regard your unsecured debts will cease. Your creditors will be paid under the Debt Agreement.

No, you pay your Debt Agreement administrator and they pay your creditors through the Debt Agreement. In other words, they will receive dividend payments from Debt Negotiators as scheduled by your proposal.

Yes, your creditors have the right to reject your Debt Agreement proposal. It’s important that you make a full disclosure of all your current income, debts, and assets. There is no guarantee that creditors will accept your proposal.

If your Debt Agreement is rejected, it is possible to re-submit a new proposal. If new information comes to light or there are added benefits for creditors, they may be willing to consider a new proposal. If your Debt Agreement proposal is rejected:

• you and your creditors will be notified in writing
• your creditors can apply to make you bankrupt, if your debt is above $10,000, to recover their debts
• the outcome of the proposal will be listed on the National Personal Insolvency Index (NPII) – this will happen even if your proposal is rejected. It will stay on the NPII for 12 months if rejected.

You will need to pay an up-front fee before the Debt Agreement is accepted for processing. An administration fee will also be included in your minimum monthly payments.

No, you will not be refunded the up-front fee if your proposal is rejected by your creditors. However, Debt Negotiators will stop scheduled payments to your creditors immediately. Debt Negotiators will only refund fees in the case that AFSA rejects the Debt Agreement for processing because we were at fault.

Once your debt agreement is in place:

• your unsecured debts will be included in your Debt Agreement
• your included creditors will no longer be able to contact you
• you must comply with the terms of the agreement
• you must maintain regular payments and complete the agreement by the due date
• you must let your Debt Agreement Administrator know straight away if your circumstances change or you have problems making payments
• your administrator will keep AFSA and your creditors informed on the progress of your agreement
• your administrator will deal with the payments as set out in your agreement.

If you’re having trouble meeting your payments, either yourself or your Debt Agreement administrator can apply for a variation in writing. The proposed variation will undergo the same approval process as the original agreement.

Once your agreement ends, most of your debts will be released and you will no longer need to pay them. Be aware that you may still have some debts you need to pay.

There is nothing stopping you from applying for a credit card or a loan while you have a Debt Agreement in place. However, your Debt Agreement will be listed on your credit file for a period of five years, or longer in some instances, and will be placed on the National Personal Insolvency Index (NPII) which is a public record for five years from the date of the agreement or two years after the end date, whichever ends latest. This record will deter standard lenders from offering you a loan.

You may be able to apply for a bad credit loan or a secured loan, such as a house or car loan, from a subprime lender at a higher interest rate and then refinance once your record has been cleared.

For the best chance of applying for a credit card or a loan from a mainstream lender, we recommend you wait at least six to 12 months after your Debt Agreement has ended.

As stated above, many of the major banks won’t approve a home loan while you have a default on your credit file. You may have to apply for your home loan from a subprime lender at a higher interest rate with a goal to refinance once your credit record has been cleared.

Yes, a Debt Agreement can be cancelled. However, this is not advisable.

There are three ways in which a Debt Agreement can be cancelled:

1. You lodge a termination with the Australian Financial and Security Authority (AFSA). Your creditors will vote on the termination in the same way they voted for the original agreement and a majority will need to accept for the termination to go ahead. This is called self-termination.
2. You miss payments for your Debt Agreement for six months and a day. This is called a 6-Month Statutory Default.
3. Your creditors apply to have the agreement terminated because you aren’t meeting your payment terms. This is called a Creditors Termination.

There are consequences to cancelling  your Debt Agreement. A Debt Agreement is a legally binding document and as such, if you cancel:

• your creditors can commence their debt recovery actions and your debts will be reinstated
• your debts will start incurring interest (which may be backdated)
• your credit file will show your Debt Agreement as ‘not-finalised’ for seven years
• your creditors can apply through court to make you bankrupt
• your information will remain on the National Insolvency Index (NPII) for a period of time.

Are there alternatives to cancelling?

Yes. If you find you are unable to meet the payments of your Debt Agreement because your circumstances have changed (if, for example, you’ve lost your job or your expenses have increased), let your debt administrator know immediately. They can apply for a variation with AFSA. Your creditors can also apply for a variation.

It is absolutely imperative that you make sure your payments are affordable before entering into a Debt Agreement. To make the best decision for your situation, seek financial advice.

A Debt Agreement is discharged when you complete the agreement and all the debts within the agreement have been settled.

Debt Negotiators is able to offer you several Debt Agreement options, including:

• Informal Debt Agreements
• Part IX or Part 9 Debt Agreements, called Debt Agreements
• Part x or Part 10 Debt Agreements, called Personal Insolvency Agreements or PIAs.