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What is the Difference Between a Part 9 Debt Agreement and an Informal Agreement?

Posted by Debt Rescue on Sep 4, 2019 12:08:00 PM

If you are unable to pay off your debts, a Debt Agreement is an affordable option that allows you to reduce your debts and avoid the long-term effects of Bankruptcy. There are two types of Agreements: A Formal Part 9 Debt Agreement (DA) and an Informal Agreement (IA). So you can make an informed decision about your financial future, here is some helpful advice on the differences between a Part 9 Debt Agreement and an Informal Agreement.

The main difference between a DA and an IA is the length of the agreement and the effect it has on your credit file. Unlike Bankruptcy, a DA and IA will not impact you for life. Instead, they are both positive solutions if you’re falling behind on debt and need a resolution plan.

Thousands of Australians every year struggle with debt and seek a positive solution to their financial troubles. In the 2018-19 financial year, there were 11,549 people who entered a Part 9 Debt Agreement.

The new Bankruptcy Amendment (Debt Agreement Reform) Bill 2018 (the Bill), which came into effect on 27 June 2019, has changed the length of a DA to last for a maximum of 3 years instead of 5 (unless you own property). This means you have a reduced window to pay off your debt. An IA, however, can be any length of time but generally lasts between five to seven years. This may be the better option for many Australians struggling with debt who need longer to pay it off.

Both agreements enable you to manage your debt with one easy payment while still leaving you money to live comfortably.

What is a Part 9 Debt Agreement?

A Part 9 Debt Agreement is a legislated, legal and binding agreement between you and your creditors. It is a positive solution which outlines a new, affordable payment arrangement of your unsecured debts. This allows you to repay only a percentage of each dollar you owe, while being able to get on with your life and avoid the harsh consequences of bankruptcy.

DAs fall under Part 9 of the Bankruptcy Act 1966. So, technically, it is considered an act of Bankruptcy. However, it’s very different from actually declaring Bankruptcy. Entering a DA doesn’t carry the same lifetime restrictions as bankruptcy.

With the new Bill, a Debt Agreement now only lasts for 3 years (unless you own property, which may mean you can extend a DA for up to 5 years). Your name will appear for 5 years on the National Insolvency Index (NPII) and a record of your details is kept on your credit file for up to five years.

What is an Informal Agreement?

An Informal Agreement is a legally binding contract between you and your creditors to change the terms of your existing debt contracts. It allows you to renegotiate the terms of your debt so you can settle on a new repayment arrangement which is affordable to you. An IA does not fall under the Bankruptcy Act, so it is not marked on your credit file. This does not, however, exclude an individual creditor from listing a default on your file.

IAs terms and conditions are up to the discretion of the individual creditor. An IA can cover one debt or several.

At Debt Rescue, our IAs are called Debtstroyer Agreements. True to their name, they enable a number of creditors to be paid off with one easy affordable payment. After analysing your individual situation, we negotiate with your creditors the lowest possible repayment option then we agreed on a weekly, fortnightly or monthly payment plan. A Debtstroyer Agreement or IA can have your total debt reduced between 20 and 80%, depending on your creditors and your individual situation.

Registered Debt Administrators

If you're considering entering into a Debt Agreement, be wary of companies who don't carefully assess your individual circumstances.

Make sure you check the Administrator is on the Australian Financial Security Authority’s (AFSA) list of registered Debt Agreement Administrators.

Also check the fees of the Administrator carefully. Registered Debt Administrators charge fees for their services just like you would pay an accountant or tax agent to do your tax return. The fees normally consist of upfront fees and ongoing fees. Although these do add to your total debts, your overall debt will be considerably less as the interest on your debts is paused and you are paying a reduced amount of every dollar you owe. The overall result is a considerable saving for you.

Debts that Cannot be Included in a Debt Agreement

Some debts cannot be included in your DA and will continue after a DA has finished include:

  • Debts incurred by fraud,
  • Child support,
  • Fines, penalties or other court-ordered payments, and
  • Student HECS or HELP, Student Financial Supplement Scheme debts.

These debts are however included in your personal budget when agreeing on an affording payment plan.

How to Apply for a Debt Agreement or Informal Agreement

A DA has requirements you must adhere to before you apply, whereas an IA doesn’t have limiting criteria. You are eligible to apply for a DA if you:

  • Are unable to pay your debts when they are due,
  • Have not been bankrupt, had a DA or Personal Insolvency Agreement in the last 10 years,
  • Have unsecured debts and assets less than the set amount, and
  • Estimate your after-tax income for the next 12 months to be less than the set amount.

To be eligible for an IA, you must:

  • Be unable to pay your debts when they are due or,
  • Have had sudden and unexpected illness or injury or,
  • An unexpected and temporary change in employment or,
  • An unexpected change in living arrangements, such as separation or divorce, or
  • If you fall outside the criteria for a DA.

How the New Bill Effects a Part 9 Debt Agreement

The new Bill limits the length of a DA to three years and:

  • Doubles the current asset eligibility threshold (from $113,350 to $231,467),
  • Provides the Official Receiver in Bankruptcy the ability to reject proposed DAs,
  • Sets stricter practice standards, including tougher penalties for wrongdoing (such as a new six-month period of imprisonment if an administrator offers a creditor money with a view to influencing their vote),
  • Grants the Inspector-General in Bankruptcy additional investigative powers to address misconduct, and
  • Ensures greater professionalism into the industry by requiring DA administrators to hold and maintain professional indemnity and fidelity insurance as a requirement of registration.

Although these changes will allow you to manage your debts in the short-term and work towards a fresh start, many Australians will now choose to initiate an IA due to the short time constraints a DA will have to pay off debts.

The Benefits of Entering a Part 9 Debt Agreement and an Informal Agreement to Repay Your Debts

Both agreements have the intention of pausing your interest and reducing your total debts owed so you can make affordable repayments in peace. Initiating a DA or IA will stop all of the harassing phone calls by your creditors, instantly relive debt stress and allow you to breathe easy and get on with your life.

Debt Rescue specialises in helping clients through the DA and IA processes to reduce their stress and make their debts more affordable. If you think a DA or IA is the best solution for you, contact us today on 1800 560 579.

Our friendly, experienced team will work with you to understand your individual financial circumstances and create a tailored Debt Management Plan to suit your needs. A Debt Agreement and Informal Agreement are both a type of Debt Management Plan which may help you regain financial stability and get your life back on track. 

For more information on Debt Agreements and how they can help you find financial relief, check out our Debt Agreement page. 

Topics: Debt Agreements, News, Informal Agreement

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