In fiscal 2017, 13,597 Part 9 debt contracts were entered into in Australia. They are proving to be an increasingly popular way to pay down debts and avoid bankruptcy, despite the consequences of Part 9 of the debt agreement. The establishment of a Part 9 debt agreement is an important step and it is important to understand how this agreement works. Debt agreements are not loans, but an agreement with creditors. It‘s a pointless way to combine current unsecured debts into a regular repayment rate that matches your budget. A debt consolidation loan simply borrows a new, larger credit to combine the debt. Those with a poor credit rating may have difficulty qualifying for a debt consolidation loan. When your debt contract is concluded, your unsecured debts will be frozen. This means that when the debt contract comes into effect, no interest or fees can be collected on your unsecured debts. This allows you to pay off your debts over a fixed period of up to 3 or 5 years, through weekly repayments depending on accessibility. After successfully concluding the terms of the debt agreement, you will be released from any unsecured debt included in the agreement. All unsecured creditors have the right to vote.
A secured creditor can only vote for an unsecured portion of its debt. For example, if you have a guaranteed loan for a car for which you owe $24,500 and your car is valued at $19,000, the secured creditor has the right to vote on the unsecured portion of that debt. In this example, it is $5,500. This is due to the fact that the value of your car is less than the amount you owe and that this part or lower amount is considered an unsecured debt. Bankruptcy is, where you are declared, unable to pay your debts. You then enter into legal proceedings and you will receive an agent who will take care of your bankruptcy-related affairs, including the guarantee that your income does not exceed indexed amounts and the sale of assets to pay your debts. In general, a Part 9 debt contract is more favourable to bankruptcy if you are eligible. You have the same restrictions if you are independent and the offer is displayed in your credit file for the same period. Debt contracts also have fewer restrictions than bankruptcy and your assets will only be withdrawn if you do not meet your repayments. If you are unable to meet your debts, you may want to consider bankruptcy or an alternative to bankruptcy called the “debt agreement.”