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 less formalities. It will not be listed on your credit report and does not fall under the bankruptcy act. 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 to repay what is fair and reasonable to your creditors – and in most cases is 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 an enquiry 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.
How do debt agreements differ from debt consolidation loans?
Whether you are considering an informal debt greement or a Part IX debt agreement – neither of these options are loans. Instead they are an agreement with your creditors. It is an interest-free way of combining current unsecured debts into one regular repayment set to match your budget. A debt consolidation loan is simply taking out a new larger loan to combine debts. Those with a bad credit score may have difficulty being approved for a debt consolidation loan, but fortunately a bad credit score doesn’t stop you from being eligible for a debt agreement.
Why wouldn’t I just go bankrupt instead?
Unfortunately, there are no quick fixes for dealing with unmanageable debt. Declaring bankruptcy brings with it many requirements and restrictions like having certain assets sold by a trustee, having your income monitored, loss of certain trading licenses, having to surrender your passport and your credit score taking a big hit.
What are the pro’s and con’s of an Informal Debt Agreement?
- More flexibility that a Part IX debt agreement.
- Not listed on your creditor report.
- 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 is no eligibility criteria for an informal debt agreement, so anyone that is suitable is eligible for assistance. Generally speaking an informal debt agreement is not considered as serious as a Part IX debt agreement and often will be a step that someone tries before considering formal options like a Part IX debt agreement or bankruptcy.
What debts can be included in an Informal Debt Agreement?
- Unsecured debts like payday loans, personal loans, credit cards, lines of credit, BNPL accounts and closed utility bills are the most common debts included in informal debt agreements
What debts can’t be included in an Informal Debt Agreement?
- Generally speaking, secured debts like car loans and home loans will not be include in your informal debt agreement. Your repayments on these loans will be factored into your budget so that you can afford them and your informal debt agreement payment, but often your creditors on these debts will continue to be paid direct by you
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 then negotiate with your creditors in an attempt to gain acceptance of your offer.
- Once your creditors agree – you then pay a regular payment into our informal trust account and we pay your creditors for you on a monthly basis.
Does an Informal Debt Agreement affect my credit score?
An informal debt agreement will not directly be listed on your credit file, so will not affect your credit score in this regard. However, your informal debt agreement will often be negotiated under the lender’s hardship provisions. If the negotiation ends in a reduced repayment arrangement, depending on the lender, the fact you are on reduced repayments may still be listed on your credit file.
What are the pro’s and con’s of entering into a Part IX Debt Agreement?
- Your debts will often be reduced significantly.
- Your debts will be combined into only one 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 less restrictions then declaring bankruptcy.
- Your debt agreement will be listed on your credit report.
- As your administrator, we are regulated by AFSA (Australian Financial Security Authority).
Who is eligible for a Part IX Debt Agreement
Debt Agreements are suitable for people with unmanageable debts i.e. people who are unable to pay their debts as they fall due or are struggling to manage multiple creditors.
To be eligible to enter into a Part IX debt agreement you cannot have been bankrupt or in another debt agreement in the previous 10 years. You cannot have unsecured debts of more than $120,000, assets over $240,000 or be earning a take home income over $90,000 per year. These amounts are approximate so if you are unsure of your debt, asset or income level or are close to these amounts, we will assist you to check and confirm your eligibility.
We do find however that most people we speak to are eligible as they have less than $120,000 in unsecured debt, less than $240,000 in net assets (equity in their home) and they take home 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 voting.
- During the voting period, payments to your creditors are frozen.
- If the majority of creditors (based on debt value) accept the terms, the proposal is approved.
- Once approved, the debts remain frozen and all further interest is stopped.
- Once the approved debt agreement commences, you begin repaying the agreed amount into our trust account – for us to then 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 do not recommend you apply for finance when in a debt agreement, as ultimately we are trying to help you improve your credit rating and assist you to become debt free.
What are the costs of entering into a Part IX debt Agreement?
At Safe Debt Management we have a no win, no fee policy – so in the unlikely event that we can’t help you, we won’t charge you!
A $200 non-refundable AFSA lodgement fee is payable at the time of submitting all paperwork. To make life easier, you can pay 4 instalments of just $50 per week, payable towards your AFSA lodgement fee.
We also have a set up fee that becomes part of your debt agreement – you are not required to pay this 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 for you – and are paid an administration fee for this, 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. AFSA (Australian Financial Security Authority) 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 that 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.
Need more information? Book your free debt assessment today!