Part IX Debt Agreements

Under the Bankruptcy Act

A Debt Agreement is a simple flexible method for debtors to negotiate a legally binding compromise with their creditors. It releases a debtor from their debts once creditors accept the proposed Debt Agreement. 

What is a Part IX Debt Agreement?

A Part IX Debt Agreement is when an individual who is insolvent enters into a formal agreement with creditors. The Agreement is administered by an independent person and is a flexible arrangement negotiated between the individual and creditors. A Part IX Debt Agreement is different from a Part X Arrangement in that eligibility is limited based on debtor’s assets, liabilities, income and prior acts of bankruptcy. This agreement is aimed at lower level debts often associated with consumer liabilities.

What causes Part IX Debt Agreements?

A Part IX Debt Agreement occurs in lieu of bankruptcy, when the individual is unable to pay all debts. The individual receives letters of demand, writs and/or bankruptcy notices from creditors, debt collectors or solicitors

What can be offered in a Part IX Debt Agreement?
Almost anything can be offered, it just needs to make sense and be believable. Things that are commonly proposed include:
  • A lump sum of money
  • Funds over time
  • Proceeds from the sale of certain assets
  • Any combination of the above
Who can apply for a Part IX Debt Agreement?

A Debt Agreement is limited to a debtor who has: Not been bankrupt, utilised a Debt Agreement or given an Authority under Part X of the Bankruptcy Act in the last 10 years; Estimated after tax income, for the 12 months after the proposal is given, of less than the threshold amount. 

Effects on Individuals

Possible effects a Part IX Debt Agreement can have on individuals include:

  • It is binding upon all parties
  • The restrictions of bankruptcy are avoided
  • Provide relief from debt problems and extinguish existing debts
  • Arrangements are flexible
  • Can start life afresh, free of debt
  • Less expensive than Part X
Effect on Creditors
Once accepted, unsecured creditors are bound by the agreement, regardless of whether they are in favour of the proposal. Unsecured creditors exchange their right to pursue the debtor for payment for an entitlement to receive a dividend from the funds or property made available under the proposal.

The effects on creditors can include:

  • The arrangement is binding upon all parties
  • Uncertainty is crystallised
  • Arrangements are flexible
  • Often provides a higher and quicker dividend than under bankruptcy
  • The arrangement is generally finalised sooner and is less costly than Part X
How to settle a Part IX Debt Agreement

A debtor can make a written proposal through AFSA. The debtor can propose to pay creditors by instalments, make a lump sum payment or even give an asset(s) to creditors. There is a fee payable of $200 to AFSA, plus any other fee if you engage external assistance for work carried out in setting up the Debt Agreement.

Debt Agreement proposals are either accepted or rejected by creditors. Voting is normally done by letter, however a physical meeting may be held. A proposal is accepted if a majority in value of creditors who vote / reply before the applicable deadline state that the proposal should be accepted. Take Note: Giving a proposal to AFSA, or setting up a Debt Agreement and not keeping up the repayments is an 'Act of Bankruptcy'. A creditor can use this to apply to the Federal Court or Federal Circuit Court for a Sequestration (Bankruptcy) Order.

Ending a Part IX Debt Agreement

An IX Debt Agreement ends when the debtor have completed all obligations and payments to the creditor. The debtor is then released from all the debts covered in the debt agreement.  The National Personal Insolvency Index (NPII) will be updated once your administrator notifies the Official Receiver of the completion of all obligations and payments.

Contact Us

SV Partners can assist you with any questions or advice relating to debt agreements. Please contact one of our expert advisors if you would like more information.

 

Our Personal Insolvency Experts

If you have any questions relating to our Personal Insolvency services, please contact one of our expert advisors.

 

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Handbooks

Alternatives to Bankruptcy Handbook

 

Bankruptcy Information Memorandum

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