If you’re struggling just to meet the minimum repayments on your debts, you’re likely to be seeking options to help improve your financial situation.
This can take many forms, and, even in extreme scenarios, you may not have to immediately turn to bankruptcy, which should only be a last-resort option.
Instead, you can enter into a Personal Insolvency Agreement. This is similar to declaring bankruptcy, but with a number of key differences. Here’s what you need to know.
A Personal Insolvency Agreement, also called a Part X or Part 10 Debt Agreement, is an arrangement between you and your creditors to help you get out of debt effectively.
In some cases, you may agree to pay some or all of your debts in a single, lump sum, or you might structure your agreement to reduce the rates of your monthly payments.
Depending on the specific terms of your agreement, you may be able to keep your house, car and business for the duration of the agreement.
There are no restrictions regarding the amount of debt you must have in order to qualify for a Personal Insolvency Agreement.
However, you must be based in Australia, and the trustee you appoint to manage your agreement must be in Australia as well.
Also, you must not have completed a Personal Insolvency Agreement within the last six months. Although the court does have the option to override this rule, this is not a common occurrence and cannot be relied upon.
Finally, you must be able to prove that you truly are unable to make your repayments as originally agreed.
A Personal Insolvency Agreement is a necessary safeguard for creditors and for those in debt; it is not a lifestyle choice.
The first step to creating a Personal Insolvency Agreement is appointing your trustee. This person will manage your accounts for the duration of your agreement, so it is important to choose wisely.
A trustee will typically charge a fee for this service, and the fee can vary hugely from provider to provider. Be sure to do plenty of research before selecting a trustee to manage your agreement.
Once you have chosen your trustee, the next step is to draw up your agreement. Your trustee will analyse your current debts to come up with a suitable plan for repayment that will satisfy both your needs and those of your creditors.
Your creditors will meet to discuss the agreement and to determine whether to accept or reject it. In order to be approved, more than half of your creditors must approve the agreement, and these creditors must amount to at least 75% of the amount you owe.
Once your Personal Insolvency Agreement is in place, you’ll be required to make repayments as agreed. You’ll also have to abide by any additional terms set out in your agreement.
Your Personal Insolvency Agreement will also be recorded in the National Personal Insolvency Index, and will appear on your credit file for at least five years.
Although a Part 10 Debt Agreement is not the same as bankruptcy, having it listed on your credit history can still affect your credit rating, as it demonstrates that you were not able to manage your credit effectively.
For the duration of your agreement, your creditors are legally bound by the Personal Insolvency Agreement. This means that they cannot proceed with any action against you for not repaying your debt as originally agreed.
This will prevent any additional negative marks from being added to your credit file. Your creditors can, however, register a single default with the credit-reporting agency.
As mentioned in the previous section, a Personal Insolvency Agreement will stay on your credit report for five years or more, which can lower your credit score and may make it difficult to obtain loans or other financing in the future.
If you fail to meet the obligations of your agreement or don’t make your repayments as agreed in the Personal Insolvency Agreement, your creditors have the right to declare you bankrupt, which could see your car, house or business sold off in order to recover debts.
If you are considering a Personal Insolvency Agreement to help you get out of debt, make sure you get free financial advice from the experts here at Debt Negotiators before entering into one.
We’ll work closely with you to evaluate all of your options before helping you decide which is the best path for your needs. Call us today to get started.