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Considering a Part IX Debt Agreement? Be wary when there’s money to be made

You may have seen a lot of advertisements lately for Debt Agreements from large debt administrators. Some of you may have wondered – why would a company invest money in advertising to help people manage their debts? The reality is, the companies who “Administer” debt agreements make large amounts of money for doing so – much more than the cost of the advertisements.

A Part IX debt agreement is an agreement made between yourself, a debt administrator and creditors whom you agree to pay a percentage of your debts over a fixed length of time. The debt administrator adds an upfront fee, as well as a percentage based fee on top of every payment made once your debts are consolidated and recoup the fees over time from your payments.

In the circumstance where you have a mortgage and are not behind on your repayments, Part IX Debt Agreements allow you to keep your home as long as you continue to make payments listed on your debt agreement. Failure to do so means your house could be sold by your creditors.

When you are in a poor financial position, debt administrators whom seek to profit over your misery will often attempt to ‘sell’ you these agreements as if they are a viable option besides bankruptcy – in some cases, they can be – but for many, they are just as detrimental to your credit as bankruptcy itself as these Part IX Debt Agreements are considered an act of bankruptcy. Sold by debt administrators as a ‘no money down’ transaction, these can seem very tempting to individuals currently weathering financial burden – especially when practitioners engage in pressure selling techniques and downplay the negatives associated with these agreements.

The negatives to entering into a Part IX Debt Agreement include you still being required to make repayments on your debts. Not all debts can be consolidated (the same debts that Bankruptcy does not protect you from). While reduced, your debts still remain for the length of the agreement. Certainly the biggest negative is these agreements come with the burdens associated with bankruptcy itself (i.e your name still appears on the NPII for up to 5 years, you must inform your administrator of specific changes in your life, your credit file is marked for 5 years, etc).

How does a Part IX Debt Agreement compare to Bankruptcy?

Unlike a Part IX Debt Agreement, Bankruptcy is a declaration that you are unable to pay your debts to your creditors. In doing so, you enter the protection of the Bankruptcy Act which frees you from most (not all – the Government always gets their money) of your debt obligations – giving you a fresh start to your financial life.

Bankruptcy, when entered into voluntarily or forced into by a creditor’s petition, covers both secured and unsecured debts. Assets you have accumulated (houses, shares, some vehicles etc) will be sold by your appointed trustee to recover as much of your debt as your trustee is able to – to repay creditors you list on your application. There are some debts you are unable to be released from, but for all other unsecured debts listed on your application (such as personal loans, utility bills and credit cards), they will no longer be required to be repaid.

As part of the bankruptcy process – you will be assigned a Trustee (usually the Official Trustee – AFSA – however you can choose your own ). This entity manages your bankrupt estate. As described in our During Bankruptcy F.A.Q area, you must notify your trustee of your income, liabilities and assets. Intentionally misleading your trustee can be considered an offense so it is best to be truthful in your application. Once your application is accepted, your trustee will notify your creditors of your situation (legally stopping them from hassling you for debts) and sell assets they deem fit to.

In comparison to Part IX Debt Agreements, entering bankruptcy will list you permanently on the NPII. Along with this listing, there are certain jobs that you will never be able to obtain (i.e financial sector / banking jobs) – as well as some licensing associations which may restrict your ability to obtain such licenses. Your ability to travel overseas is also affected (however it is unlikely you will be denied this ability as long as you are able to pay the government fee associated each time you attempt to travel outside the country).

Of the two, which option should I choose?

Every person’s circumstance is different which makes this question impossible to answer in a blog post. If you are currently experiencing financial hardship, your best bet is to get independent advice! Preferably from a company who does not seek to profit from your stressful situation.

The National Debt Helpline is a government sponsored service which stands to not gain or lose from your bankruptcy (Government debt is not released when standing under the protection of any form of bankruptcy). They have an anonymous help line you can call between 9:30am and 4:30pm Monday – Friday AEST where you can speak to a financial counselor about your situation.