Part IX & Part X Debt Agreement

A Part IX Debt Agreement is a formal arrangement between a person and their creditors, which is legislated under the Bankruptcy Act (the Act). It is a government monitored scheme and managed by a Debt Agreement Administrator.

Debt Agreements are suitable only in very specific circumstances for debtors with relatively small debts, low incomes and little property.

To be eligible you must:

• not have been bankrupt or had a debt agreement in the past 10 years
• have unsecured debts of less than $137,537.40
• have divisible property less than $275,074.80
• have estimated after-tax income for the next 12 months of less than $103,153.05
• be able to afford the repayments under the Debt Agreement.

Part X of the Bankruptcy Act 1966 allows individuals to enter into a formal agreement with creditors, known as a Personal Insolvency Agreement (PIA), in full and final satisfaction of their debts and avoid bankruptcy. A PIA will allow you to move forward without some of the restrictions of bankruptcy.

A Part X PIA requires:

The appointment of a bankruptcy trustee to take control of your property; and making an offer to creditors to settle your debts (including the ATO).

The offer may be to pay all or part of your debts by selling property, paying a lump sum or instalments, or by a combination of those.

If the required amount of your creditors agree, then the agreement remains in place until it is completed, and the debtor avoids bankruptcy.

The voting for a PIA is done by a special resolution. A special resolution is a resolution passed by a majority in number and at least 75% in value of the creditors represented at the meeting, who vote on the proposal.

Some of the advantages of using a Part X PIA rather than going bankrupt are:

• Avoid the restrictions of bankruptcy;
• There are no income contribution requirements;
• There are no asset ownership restrictions;
• Only property included in the PIA (if any) is affected, so other property is not available to creditors.
• The arrangement binds creditors;
• There are no international travel restrictions;
• Speedy relief from creditor actions;
• The debtor is given a fresh start.

A PIA might be the right choice if you wish to avoid bankruptcy. We are able to:

• evaluate your financial situation
• identify your debt relief options;
• help you proceed with the best option; and
• support you throughout the whole process.

If you meet the Act’s eligibility criteria, the usual steps are:

• Appointment of a Debt Agreement Administrator.
• The administrator helps with the preparation of the debt agreement proposal, based on what you can afford to pay back.
• The administrator lodges your debt agreement proposal with the Australian Financial Security Authority (AFSA).
• AFSA circulates your debt agreement proposal to creditors and collates their votes.
• Your creditors vote to accept or reject your proposal.
• If the majority of creditors accept it, the debt agreement proposal becomes a Debt Agreement. All creditors receive the same proportion of what is owed — for example, if you pay back 90% of your debts over five years, each creditor gets 90% of what you owe them.

A better alternative to full bankruptcy.

• No restrictions on being the director of, or otherwise managing, a company.
• Can acquire new assets.
• Interest on unsecured debts is frozen. Only the amount payable at the date that the Debt Agreement is accepted by creditors is claimable.
• Creditors cannot pursue a debtor legally to recover money owed.
• Retention of property within the equity threshold.