Debt Agreements – what you need to know
At Safe Debt Management, we’re all about making your life better! If you’re struggling with debt and want to live a debt-free life, a debt agreement may be the right solution for you.
What is a Part IX Debt Agreement?
A Part IX debt agreement is an agreement that we help you make by negotiating with your creditors to repay your outstanding debt at a rate you can afford – which is often substantially less than what you currently owe. A debt agreement stops any further interest being charged on the debts that have been included in the agreement. A debt agreement is listed on your credit report and will be updated accordingly when you finalise your debt agreement. Most debt agreements have a maximum term of 3 years.
What is an Informal Debt Agreement?
An informal debt agreement is similar to a Part IX debt agreement in that you are repaying your debts at a rate you can afford but with fewer formalities. Unlike a Part IX debt agreement, it will not be listed on your credit report and does not fall under bankruptcy. With an informal debt agreement, we negotiate with your creditors under the financial hardship processes they have in place. The goal of an informal debt agreement is to assist you in repaying what is fair and reasonable to your creditors – and, in most cases, without any further interest or fees being charged.
Whether a Part IX debt agreement or an informal debt agreement is right for you will depend on your circumstances, requirements and objectives.
How does it all work?
Step 1. Submit a request here or call 1300 661 901 to talk to one of our debt solution specialists.
Step 2. We’ll obtain your consent so we can collect information from you and your creditors to fully understand your situation, including all the debts you have. There is no obligation – we just need to find out enough information so we can recommend the right solution for you.
Step 3. We’ll make a recommendation to you based on your personal situation and your requirements and objectives. We will not charge you if we cannot assist you. And, if we feel there may be a better solution for you in the market, even one that we do not offer, we will happily advise you of this.
Step 4. Should we recommend a solution where we can assist you – and you agree to proceed, going forward, we will deal with your creditors. We will be their point of contact for you – so you don’t have to deal with them anymore.
Whatever the solution we recommend, the plan is to stop you from struggling week to week so you can become debt-free. Our debt solution specialists will work with you to develop a personalised budget so the agreement we help you make with your creditors is affordable and sustainable.
Your personalised budget will detail what is needed for you to pay all your general living expenses and essential bills. We’ll then work out a figure with you that can be offered to your creditors for all the debts that are going to be included in your agreement.
FAQ’s
How do debt agreements differ from debt consolidation loans?
If you’re considering an informal debt agreement or a Part IX debt agreement, it’s important to understand that neither option is a loan. Instead, these are agreements made with your creditors. They offer an interest-free method to combine your current unsecured debts into a single, regular payment that fits your budget.
In contrast, a debt consolidation loan involves taking out a larger loan to repay multiple debts. Individuals with poor credit scores may struggle to obtain approval for a debt consolidation loan. However, it’s worth noting that having a bad credit score does not disqualify you from being eligible for a debt agreement.
Why wouldn’t I go bankrupt instead?
Dealing with unmanageable debt often has no quick solutions. Declaring bankruptcy involves several requirements and restrictions. These can include having certain assets sold by a trustee, having your income monitored, losing specific trading licenses, surrendering your passport, and experiencing a significant drop in your credit score.
What are the pros and cons of an Informal Debt Agreement?
- More flexibility than a Part IX debt agreement.
- Protects your credit score by listing a temporary financial hardship.
- Faster turnaround time.
- Depending on the level of debt, it can be a cheaper option.
- Anyone is eligible.
- In most cases, your debts will be frozen.
- Not normally binding on your creditors.
Who is eligible for an Informal Debt Agreement?
There are no eligibility criteria for an informal debt agreement, so anyone is eligible for assistance. Generally, an informal debt agreement is not considered as serious as a Part IX debt agreement. It is often a step that someone takes before considering formal options, such as a Part IX debt agreement or bankruptcy.
What debts can be included in an Informal Debt Agreement?
Unsecured debts, such as payday loans, personal loans, credit cards, lines of credit, buy now, pay later (BNPL) accounts, and closed utility bills, are the most common types of debts included in informal debt agreements.
What debts can’t be included in an Informal Debt Agreement?
Typically, secured debts, like car loans and home loans, are not included in an informal debt agreement. Your repayments for these loans will be considered in your budget, ensuring you can manage both them and your payment for the informal debt agreement. In most cases, for secured debts, you will continue to make payments directly to your creditors.
How does an Informal Debt Agreement work?
- An informal debt agreement proposal is prepared according to what you can afford to repay.
- The proposal is sent to your creditors for feedback.
- We negotiate with your creditors to secure their acceptance of your offer.
- You then make regular payments into our informal trust account, and we pay your creditors on your behalf each month.
Does an Informal Debt Agreement affect my credit score?
No, repaying your creditors through an informal debt agreement under financial hardship provisions will not affect your credit score. In July 2022, laws were amended to prevent people experiencing financial difficulties and entering financial hardship arrangements with their creditors from having their credit score affected. This means if the credit provider you owe money to accepts your financial hardship offer, they will list a temporary “Financial hardship” listing on your credit report, which will be deleted after 12 months and will not impact your credit score.
What are the pros and cons of entering into a Part IX Debt Agreement?
- Your debts will often be reduced significantly.
- Your debts will be combined into a single, affordable, regular repayment.
- Interest and fees on your debts will be frozen.
- Once accepted, the debt agreement is binding on your creditors.
- A debt agreement has fewer restrictions than declaring bankruptcy.
- Your debt agreement will be listed on your credit report.
- As your administrator, we are regulated by the Australian Financial Security Authority (AFSA).
Who is eligible for a Part IX Debt Agreement
Debt Agreements are suitable for individuals with unmanageable debts, i.e., those who are unable to pay their debts as they fall due or are struggling to manage multiple creditors. To qualify for a Part IX debt agreement, you must meet the following criteria:
1. You cannot have been bankrupt or involved in another debt agreement in the past ten years.
2. Your unsecured debts must not exceed $120,000.
3. Your assets must be valued at no more than $240,000.
4. Your take-home income should not be greater than $90,000 per year.
These amounts are approximate. If you are uncertain about your debt, asset, or income level, or if you are near these limits, we can help you verify your eligibility.
In our experience, most people we talk to qualify for assistance. Typically, they have less than $120,000 in unsecured debt, less than $240,000 in net assets (equity in their home), and a take-home pay of less than $1,730 per week after tax.
What debts can be included in a Part IX Debt Agreement?
- Unsecured debts from credit cards, personal loans, lines of credit and closed accounts/bills.
- Some ATO tax debts and Centrelink debts can be included.
What debts can’t be included in a Part IX Debt Agreement?
- Secured debts are not included. Debts such as a vehicle loan, a home loan or, if you are in a rental agreement, you can keep possession of this property by continuing to repay your secured creditors outside of the Debt Agreement.
- Court-ordered debts, fines, child support payments and other debts incurred after the debt agreement starts.
How does a Part IX Debt Agreement work?
- A debt agreement is proposed according to what you can afford to repay.
- The proposal is sent to AFSA and your creditors for their approval and voting.
- During the voting period, payments to your creditors are frozen.
- If the majority of creditors (based on debt value) accept the terms of the proposal, it is approved.
- Once approved, the debts remain frozen, and all further interest is stopped.
- Once the approved debt agreement commences, you will make the agreed-upon repayments into our trust account, which we will use to pay your creditors.
Does a Part IX Debt Agreement affect my credit score?
A debt agreement is listed on your credit report for a minimum of 5 years and will impact your ability to obtain further credit during this period.
Can I get a home loan if I am in a Part IX Debt Agreement?
There is no law against applying for new finance, such as a home loan, when you are in a debt agreement. However, there is a requirement to notify your creditors that you are in a debt agreement when applying.
Each lender will have their own requirements and view of you being in a debt agreement, and while it is unlikely to be considered a positive, there are certain lenders that may still approve your loan, including a home loan (depending on the equity you may already have).
As your administrator, we advise against applying for finance while in a debt agreement. Our goal is to help you improve your credit rating and support you in becoming debt-free.
What are the costs of entering into a Part IX Debt Agreement?
At Safe Debt Management, we operate on a no-win, no-fee policy. This means that if we are unable to assist you, you won’t be charged!
When you submit your paperwork, a non-refundable AFSA lodgement fee of $200 is required. To make this more manageable, you have the option to pay this fee in four weekly instalments of $50 each.
Additionally, a setup fee is included as part of your debt agreement. You are not required to pay this fee upfront or separately. This fee covers the time we spend contacting and negotiating with your creditors. Once your agreement is in place, we manage all payments on your behalf, and we receive an administration fee for this service, which is approved by your creditors.
What regulations do Part IX Debt Agreements come under?
Part IX debt agreements come under Part IX of the Bankruptcy Act 1966. Australian Financial Security Authority (AFSA) is responsible for administering the Act. A Part IX debt agreement ensures you have protection against any further legal action, including bankruptcy, during your agreement on the debts that have been included in your debt agreement. Basically, you are protected under the Bankruptcy Act without going bankrupt.
AFSA maintain a database called the NPII (National Personal Insolvency Index) that includes the details of all people who have entered into any form of Administration.
Who is Safe Debt Management?
Safe Debt Management is a registered Debt Agreement Administrator (RDAA #1251). They manage the individual debt agreement process for their clients.