Part IX Debt Agreements
A Debt Agreement is a legally binding arrangement between you and your creditors to repay your debts over time. It’s often referred to as a “Part IX agreement” under Australia’s Bankruptcy Act.
Key Features:
- Suitable for individuals with relatively low levels of debt and income, with thresholds in place.
- Allows you to negotiate reduced payments or a lump-sum settlement.
- Creditors agree to accept the terms of the agreement, such as reduced repayments.
- Avoids bankruptcy and its associated consequences.
Advantages:
- Stops creditor harassment and legal action.
- Provides a structured, manageable repayment plan.
- Allows you to retain control over assets (in most cases).
Considerations:
- Recorded on your credit file for up to 5 years, affecting your ability to obtain credit.
- Not suitable for those with significant assets or high debt levels.
Part X Personal Insolvency Agreements
A Personal Insolvency Agreement (Part X agreement) is a formal agreement between you and your creditors to settle debts without declaring bankruptcy.
Key Features:
- Administered by a trustee who negotiates with creditors on your behalf.
- May involve selling assets, making lump-sum payments, or agreeing to a repayment plan.
- Offers more flexibility than bankruptcy for high-income earners or those with significant assets.
Advantages:
- Tailored solutions to manage debts without bankruptcy.
- May allow you to retain certain assets, depending on the agreement.
- Stops creditor enforcement actions once the agreement is in place.
Considerations:
- Can be more expensive and complex than a Debt Agreement.
- Significant impact on your credit rating and public insolvency records.
- Requires the approval of creditors holding at least 75% of the debt value.
Bankruptcy
Bankruptcy is a formal legal process where an individual is declared insolvent and a trustee is appointed to manage their financial affairs.
Key Features:
- Available for individuals unable to repay their debts.
- Involves surrendering control of certain assets and financial decisions to a trustee.
- Typically lasts for 3 years and 1 day.
Advantages:
- Provides a fresh start by discharging most unsecured debts at the end of the bankruptcy period.
- Stops legal action, garnishments, and creditor harassment.
- Certain income levels are protected from garnishment.
Considerations:
- Some assets may be sold to repay creditors (e.g., property, vehicles above a set value).
- Significant impact on your credit rating for up to 5 years or longer.
- Restrictions on business activities and travel during the bankruptcy period.
- Does not discharge all debts (e.g., child support, fines, HECS/HELP debts).