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Whilst a Part 9 agreement is classed as an act of bankruptcy, it is not a full act of bankruptcy.

You are not declaring yourself bankrupt when you enter into a debt agreement.

Here are some of the main differences between the two:

What are the benefits and drawbacks of a Debt Agreement?

If you’re considering entering into a debt agreement, it can help to weigh up the pros and cons before taking the next step. Here are some points to consider:

  • You can avoid bankruptcy. While entering a debt agreement is an act of bankruptcy, it isn't completely declaring bankruptcy. Entering a Part IX debt agreement is an alternative.

  • Your debts won't accrue interest or fees. After the creditors have voted "yes" on the debt agreement, your debts will stop accruing interest, and no further fees are charged.

  • Creditors can't pursue you. Once the creditors agree, any civil actions are frozen as well, debt collection action must stop and any calls must go to the debt agreement administrator.

  • You can consolidate household debt. If your household has mounting debt you can file for individual agreements or 'Conditional Proposal' for joint debt. This means if one debt agreement isn't accepted, the other may or may not be approved depending on the condition set in the agreement.

  • You may not be able to access credit. The debt agreement is an act of bankruptcy and it will be listed on your credit file for five years. During this time your ability to access credit will be seriously impacted.

  • Secured assets are not covered by the agreement. If you do not keep up with repayments on secured assets such as car loans, creditors can repossess the security. If the asset is sold and isn't enough to recover the lender's loss, you still may owe the lender money, however this may be able to be put into your Debt Agreement depending on the ‘shortfall’. If the shortfall is too large a variation proposal may be required to include it.

  • It can damage your business. You will need to inform anyone you do business with that you are currently under a debt agreement if you do not operate your business under your own name.

  • It can restrict your employment. If you are employed in certain industries there may be restrictions placed on you, or you may not be able to be employed while you are under a debt agreement.

  • It can lead to bankruptcy. If you do not stick to your debt agreement or it is not accepted by your creditors, they can use the proposal to apply to the court to make you bankrupt.

How does the debt agreement process work?

Understanding how the Part 9 Agreement process works is important to helping you weigh up the advantages and disadvantages. Here is a breakdown of the process.

1. Review the information. You need to read and review the prescribed information about the consequences of bankruptcy, debt agreements and the alternatives that are available. You can find this information on the Australian Financial Security Authority (AFSA)'s website.

2. Debt arrangement proposal. The administrator will determine your insolvency and unmanageable debt and help you prepare a debt agreement proposal. This will outline the proposal offer in dollar terms. Separate forms will inform creditors about your financial position and your will also set out your statement of affairs. Your debt arrangement proposal will then be lodged to AFSA, the Official Receiver.

3. Your creditors will vote. Following the receipt of the debt arrangement, your creditors will receive copies of the Official Receiver's Report and the Debt Arrangement Proposal. Creditors then vote on the proposal, within a period of five weeks. If the report is accepted by the majority dollar value listed in the agreement it becomes binding and recorded on the NPII; if it's rejected by the majority it will be recorded on the NPII and creditors can continue trying to recover debts from you; if it's cancelled by the Official Receiver the NPII is updated and creditors can commence or continue with action to recover their debts.

4. If your debt agreement is accepted. You will need to comply with the debt agreement and complete it by the date listed on the proposal. Talk to your administrator if you don't think you will be able to complete it by this date.

What are the alternatives to a Part 9 Agreement?

If you're unsure whether a debt agreement is right for you, you may want to consider some ways to take back control of your debt:

  • Unsecured personal loan. Depending on how much debt you owe and the state of your credit history, you may be eliglible for a personal loan. You can borrow upwards of $60,000 with an unsecured personal loan and consolidate debt from multiple credit accounts.

  • Free financial counselling service. Before you enter into an agreement it can help to get some free advice to find out if this is the best route for you to take. You can give the service a call on 1800 007 007.

  • Balance transfer credit cards. If the majority of your debt is on credit cards and you have good credit history, you may want to consider your balance transfer options. These cards let you transfer debt from multiple cards to one and pay no interest for an extended period of time.

You can call Debt Savvy on 1300 912 197 or visit our website here. We have plenty on information that can help guide you on you path to financial freedom. Check out our blog for the latest articles or complete one of our free assessments to check if you qualify and would like a call back.