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Part IX of the Bankruptcy Act 1966 (Cth) is concerned with debtors entering into legally binding debt agreements with their creditors to repay part or all of their debts. These agreements are a possible means of helping a debtor to retain some of their assets. Debt agreements are available only to people with fairly small debts, few assets and low incomes, and only with the consent of all their creditors. Debt agreements are similar to Part X procedures although one advantage is that it is not necessary for a registered trustee to propose or administer the agreement. Another advantage is that a Part IX debt agreement has similar protections to bankruptcy including a stay on enforcement action against property and relief from harassment.

The Australian Financian Security Authority (AFSA) offers some advice and a summary of the Part IX debt process including fees, forms, set up process and consequences.

Part IX debt agreement fees

While a friend or associate of the debtor may help to establish a Part IX agreement, it is more usual for a Debt Agreement Administrator to be involved in setting up the agreement. Debt Agreement Administrators charge set up fees from $500 - $1900, although if the debt agreement is complex, the fees may be higher. Fees cover services provided to the debtor including:

  • providing information to debtors about the options to deal with their unmanageable debt and the consequences;
  • to help debtors access “hardship assistance” with banks and finance companies;
  • assistance with the debtor’s budgeting;
  • speak to creditors on behalf of debtor’s to get up to date details of their debts for preparing a debt agreement proposal explain the debtor’s circumstances and the reason why the creditors should “vote for” the proposal; and
  • preparing and lodging the debt agreement proposal forms with AFSA from information provided by the debtor.

Fees also attach to the administration of a debt agreement. This is usually in the range of 20% of the debt collected. So, if a payment of $400 comes from the debtor, the administrator will take $80 of that amount as an administration fee.

What the Part IX agreement should be about

Part IX debt agreements should offer a means for the debtor to repay their creditors. The agreements are concerned with any aspect of a debtor’s financial affairs and their attempt to discharge their debts. A proposal for an agreement should contain:

  • Debt Agreement Proposal - identifies the debtor and outlines what the proposal offer is in dollar terms;
  • Explanatory Statement - informs the creditors about their income, expenses, assets and debts, personal circumstances, household expenses and the reasons for financial difficulty;
  • Statement of Affairs – sets out in detail their personal information and circumstances, reasons for financial difficulty, sources of income, assets and debts. The completed form is not sent to creditors and is not a public document.

The forms on which these are to be provided are available on the AFSA website.

Generally, creditors will be satisfied with part payment when the alternative is that they will receive nothing at all. They are therefore likely to be interested in proposals that involve part payment, not moratoriums on transferring property, or undertakings to obtain advice. Other examples of arrangements are:

  • Periodic payments of amounts out of the debtor's income to creditors, equal to or less than the full amount of all of the debtors provable debts
  • Lump sum payment of less than the full amount of all of the debtor's provable debts
  • Payment from the proceeds of sale of property owned by the debtor
  • Moratoriums on payment of some debts

The Part IX agreement should offer a workable solution from the debtor’s income and assets to discharge debts incurred from creditors.

Limitations on Part IX agreements

Part IX debt agreements cannot be entered into by the debtor if:

  • the value of either their unsecured debts or their divisible property is over the indexed limit (s185C(4)(b) & (c)).
  • their after-tax income in likely to be over a set limit (s185C(4)(d)).
  • they have at any time in the past ten years:
    been bankrupt; or
    entered into a Part IX agreement; or
    given an authority to appoint a controlling trustee under Part X.

The proposal should be made as soon as is practicable and while creditors are still prepared to listen. The main selling point is that they will get a better return from a debt agreement than from the alternatives (in most cases, at least some return) because administration costs are much less than for a bankruptcy or a Part X proposal.

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