Pros And Cons Of A Debt Agreement

part 9 debt agreement pros and cons

Debt Agreement in Australia is a viable alternative to bankruptcy for people who are struggling with debt and need help managing their finances. Debt agreements, also known as Part 9 debt agreement in Australia, are a great way for individuals to get out of serious financial difficulty without resorting to bankruptcy. It is an agreement between you and your creditors where they agree to accept less than what they’re owed from you, in exchange for paying all of the money off within a certain period. There are things you need to know about Part 9 Debt Agreements, the advantages of this arrangement include being able to keep your assets, avoiding the costs associated with bankruptcy proceedings, and having more control over the terms of payment. While debt agreements can be advantageous in the short term, they can come with several drawbacks, so it is important to weigh all options carefully before entering into any agreement that might compromise your financial security.

Part 9 Debt Agreements in Australia are administered under the Bankruptcy Act. Debt Agreements are an alternative to bankruptcy for people who, with some assistance, can still pay most, if not all, money owing to their creditors.

Part 9 debt agreements are also an alternative to consolidation loans. A debt consolidation loan can be very expensive. You should consider all your options before deciding that debt consolidation is the right solution for you. It is important that you are not trapped in debt, fighting to keep the wolf from your door.

Check to see if you qualify for a Debt Agreement.

To assist you to become familiar with Part 9 Debt Agreement facts, below is our list of the positives and consequences of Part 9 Debt Agreements. This will help you to assess whether a Debt Agreement would be a good option for you.

Positives Of Entering Into A Part 9 Agreement

Positives of Part 9 Debt Agreements

Part 9 Debt Agreements, also known as Part 9 arrangements or Part 9 Bankruptcy Agreements, are an effective way for Australians to deal with unmanageable debts. They provide those in financial hardship with the opportunity to make one affordable monthly repayment over a period of time without the need to declare bankruptcy. This option is often preferable to declaring bankruptcy as it provides more flexible terms and conditions that may be easier to manage than other debt relief solutions. The main advantage of these part 9 agreements is that they allow individuals in financial difficulty to settle their debts by repaying less than what they owe while avoiding long-term damage on credit reports due to declared bankruptcy. Creditors are not allowed access to any assets owned by the debtor during this period which helps protect their savings and investments from being seized or liquidated. Creditors must agree not to take legal action against you provided payments are made on time and in full until the agreement ends. Let’s explore the finer points see see if A Part 9 Debt Agreement is an Option for you, keep reading:

  • Alternative to Bankruptcy: Debt Agreements can be a good alternative to bankruptcy for people who are experiencing financial distress. For a Debt Agreement, you must have stable employment and be able to afford the monthly payments.
  • Alternative to Debt Consolidation Loan: Debt Agreements can be a good alternative to debt consolidation. Debt consolidation loans can have high costs. This is due to a higher rate of interest being charged and the costs to put the loan into place. With Debt Agreements the amount you owe can be reduced to make your payments affordable. Further, no interest is charged or added to the amount you owe.
  • You chose your Debt Agreement Administrator: You can select a Debt Agreement Administrator that you feel comfortable with.
  • You do not deal with your creditors: Debt Agreements effectively put the Debt Agreement Administrator between you and your creditors. You stop communications with your Debt Agreement creditors. Your creditors and their debt collectors stop hassling you.
  • Debt recovery actions stop: From when your Debt Agreement proposal is accepted by AFSA, your creditors are unable to commence or continue court collection proceedings. This continues whilst ever your Debt Agreement in place.
  • You will have one monthly payment: Rather than managing many debts with different payment dates, this is replaced by one monthly payment. You just must make one payment per month to your Debt Agreement Administrator.
  • Your debt can be reduced: If you are unable to repay all your debts, you can propose that creditors accept a lesser amount, which you can afford. If creditors and AFSA agree with your proposal, your Debt Agreement will be for that lesser amount.
  • Your debt becomes interest-free: A Debt Agreement stops interest accruing on your debts. No interest is charged whilst your Debt Agreement is in place.
  • Avoids the cost of debt consolidation: A Debt Agreement avoids the high cost of debt refinance with a debt consolidation loan. A Part 9 Debt Agreement makes repaying your debts easier as they become interest-free. Debt consolidation can be an expensive and protracted option.
  • Not paying interest:  On the amount outstanding with a Debt Agreement, is a big point of difference between a Debt Agreement and a Debt Consolidation Loan.
  • No meeting of creditors: You do not attend a meeting of creditors or negotiate with creditors. Your Debt Agreement proposal is prepared with our assistance. We lodge it with AFSA who then circularise it to your creditors. Your creditors return a form electronically to vote for or against your proposal.
  • Time limits apply: Debt Agreements are limited to running for no longer than 3 years or 5 years if you have a house. This is an important point. Debt Agreements allow you to resolve and pay your debts within a reasonable time frame. Our observation is that it is important for your health and the health of your family that you can deal with your debt and move on within a reasonable time.
  • Life goes on: Debt Agreements normally do not cause any issues for your assets and personal effects. This includes your household furniture and effects, car, and family home. You just must make the payments required by your Debt Agreement.
  • Operating a business: You can operate a business in your own name whilst your Debt Agreement is in place. You are not required to disclose your Debt Agreement to the people you are dealing with provided you trade in your own name and your activities are within the threshold amount of [general credit=\”true\”]. Further information on this is provided below under the headings of Credit, Order Goods or Services, and Supply Goods or Services.
  • Secured creditors are not involved: Secured lenders are not bound by your Debt Agreement. Secured lenders include the mortgage on your home and the lease on your car. To retain these items, you will need to continue paying the mortgage and/or lease payment.
  • Excessive secured debt can be captured: Where the loan payout amount exceeds the value of the asset, the asset can be given back to the lender. The loan shortfall will be included as a creditor in your debt agreement.
  • Gambling: You can buy a lottery ticket or have a flutter on the horses and if you have a win, the monies are yours.
  • Windfall gains: If you receive an unforeseen windfall, for example, an inheritance, then the monies are yours.
  • Overseas travel: You can travel overseas without any involvement from the Debt Agreement Administrator.
  • Save your home: You can save your home by successfully completing your Debt Agreement. For this to happen you will need to continue paying the mortgage. For more information, we recommend our article ‘Using a Part 9 Debt Agreement to save your home’.
  • No advertisement: Your Debt Agreement proposal is not advertised in the newspapers.
  • NPII listing is not permanent: Your Debt Agreement will only be shown on the National Personal Insolvency Index (NPII) for 5 years if your Debt Agreement is finalised in an orderly manner.
  • Stress reduces: As the financial pressure reduces, your stress from the financial pressure will also subside. This will help to improve your quality of life and be able to sleep well.
  • Company director: You can be a director of a company while subject to a Debt Agreement.
  • Creditors get paid: You will have the satisfaction of seeing your creditors paid.

Consequences Of Part 9 Debt Agreements

Part 9 debt agreements are like any other financial arrangement in that they come with risks and potential consequences if terms of the agreement are not met. As such, it is important for those considering a Part 9 to understand what can happen if they do not meet their obligations. In general, when someone fails to make their repayments or otherwise breaks the agreement, then enforcement action may be taken against them by their creditors. This could include anything from charging additional fees and interest on outstanding debts to legal proceedings being initiated for court-ordered repayment arrangements. Ultimately, failure to keep up with payments agreed upon in a Part 9 debt agreement could result in significant financial damage and even bankruptcy for some individuals. Therefore, it is essential that anyone looking into this kind of arrangement fully understands all of its associated risks before signing on the dotted line. Taking a step further let’s consider the cons of the part 9 debt agreement pros and cons keep reading:

  • Setup costs: There are costs. You will be required to pay any upfront set-up fees of the Debt Agreement Administrator you select. This amount can range from $300 to $1,200, depending on who you select. AFSA charges a fee of $200 for liaising with creditors on your Debt Agreement proposal. This fee is non-refundable.
  • Administration costs: The fees of AFSA and your Debt Agreement Administrators are effectively paid by creditors. Creditors agree to this when they vote for the Debt Agreement. These fees are deducted from your payments before monies are paid to your creditors. AFSA is paid 7% of all monies you pay per your Debt Agreement. The Debt Agreement Administrator’s fee for administering your Debt Agreement is around 20 to 25% of all monies you pay.
  • Not an instant solution: Your Debt Agreement will last for 3 years. If you have a house, it can last for up to 5 years.
  • If the proposal is declined there may be consequences: Proposing a Debt Agreement is an Act of Bankruptcy. This means that if your Debt Agreement proposal is declined, a creditor who is owed more than $10,000 can file to the Court for you to be made bankrupt. If your Debt Agreement proposal is accepted, your creditors are bound by the Debt Agreement and cannot pursue your bankruptcy.
  • You will no2 longer deal with the creditors: The Debt Agreement Administrator will administer your Debt Agreement, removing you from dealing with and communicating with your creditors.
  • Not released from debts till completed: You are not released from your debts until your Debt Agreement has been completed.
  • Some liabilities cannot be included: Your Debt Agreement may not release you from all your debts. Refer to our article What Liabilities are Included in a Part 9 Debt Agreement.
  • Monthly payments will be required during your Debt Agreement: For the period of the Debt Agreement, you are required to pay the payments required by your Debt Agreement to the Debt Agreement Administrator
  • Secured creditors are outside of Debt Agreement: Debt Agreements are between you and your unsecured creditors. If you have secured creditors, they will not be bound by the terms of your Debt Agreement.
  • Credit record: Your proposal for a Debt Agreement will be shown on your Credit Record for 5 years.
  • NPII: Your proposal for a Debt Agreement will most likely be shown on the National Personal Insolvency Index for 5 years.
  • Employment: We recommend you check your employment requirements. Will a Debt Agreement negatively impact licences you hold for your employment? Check your employment contract, HR, or industry body.
  • Financial recovery: You may have a slower financial recovery than bankruptcy will provide, as bankruptcy frees up your income from creditor payments and allows you to save.
  • Must be completed to get the benefit: If you are unable to complete your Debt Agreement and need to file for bankruptcy, your financial pressure will continue for much longer than if you had filed for bankruptcy in the first place. Bankruptcy lasts for three years.
  • Must be achievable: Under a Debt Agreement, you are not released till you have fully complied with the terms of your Debt Agreement. If unable to complete the Debt Agreement, it will be terminated, and you may then need to look at bankruptcy. With bankruptcy, you will be released from all debts caught by your bankruptcy with no conditions.
  • Bankruptcy is a lower cost option: A lower cost option that releases you from your debts without cost, obligation or payment.
  • Operating a business – disclosure requirements: If you operate a business, you are required to trade in your own name. If you do not do this, you are required to disclose your Debt Agreement to all parties that you do business with.
  • Credit: If you buy goods or services worth more than the threshold amount [general credit=\”true\”] on credit you must disclose your Debt Agreement. This also applies if you pay by cheque.
  • Order Goods or Services: If you order goods and services worth more than than the threshold amount [general credit=\”true\”], you must disclose your Debt Agreement. This also applies if you undertake hire charges costing more than than the threshold amount [general credit=\”true\”].
  • Supply Goods or Services: If you undertake to supply goods or services worth more than than the threshold amount [general credit=\”true\”] you must disclose your Debt Agreement.
  • Interest exemption: If your Debt Agreement is terminated, creditors can bring to account the interest not paid on your debts while you were subject to the Debt Agreement.

Part 9 Debt Agreements are designed to assist you if you are experiencing financial pressure, or struggling to pay your debts. A part ix debt agreement aims to help you to pay your debts or near all your debts.

How Long After A Debt Agreement Can You Get A Loan?

The answer to this question depends on the type of loan you are looking for, how well you have managed your finances during the debt agreement and whether your Debt Agreement continues to be shown on your credit record. If you are applying for a secured loan, such as a home loan or car finance, there will be issues like the amount of your deposit, saving history etc. that the lender will look at. As a ballpark figure, allow around 12 months from the date of discharge before you expect to be approved for such a loan. This is because lenders will need time to assess your ability to repay any debt they provide. For unsecured loans, such as personal loans or credit cards, it may only take around 3-6 months after discharge before you can be eligible again for these types of products – depending on how well you manage your finances during the debt agreement and in the period following your debt agreement. It’s important to note that if there have been any defaults registered against your name since entering into the Debt Agreement these must first be addressed with creditors prior to applying for new credit facilities.

What we like about Part 9 Debt Agreements is that they are interest-free and can assist people who are experiencing financial pressure to protect their homes.

Further Reading About Part 9 Debt Agreement Pros And Cons

To get further insight into Part 9 Debt Agreements, we recommend our articles:

We are here to help you. If you have any questions on Part 9 Debt Agreement Pros And Cons or would like to discuss your situation, give us a call on 1300 794 492 or email: hello@understandingbankruptcy.com.au and we will answer your questions in a friendly manner without cost or obligation. 

 

Leave a Comment

Your email address will not be published. Required fields are marked *