Part 9 Debt Agreements vs bankruptcy

What's the difference between the two and which option is right for you?

If you're struggling with debt and are exploring what options you have to deal with it once and for all, you may be wondering about Part 9 Debt Agreements and bankruptcy. While the two are similar, each come with very particular features that you need to consider. These agreements can affect almost all aspects of your life for a number of years so you want to make sure you're opting for the one you need.

This guide will take you through what each is, what they entail and how to decide which is right for you.

Part 9 Debt Agreements and bankruptcy: What are they?

A Part 9 Debt Agreement is a form of bankruptcy which involves a legally binding agreement between you and your creditors. This agreement is usually facilitated by a third-party and involves you paying a certain percentage of debt which is negotiated and agreed to by all parties. You make repayments to the third-party debt agreement administrator who then pays your creditors.

Bankruptcy is where you are declared unable to pay your debts. You then enter into a legal process and are assigned a trustee who takes care of your affairs relating to your bankruptcy, including ensuring your income doesn't exceed the indexed amounts and selling assets to help pay your debts.

What are the differences between the Part 9 Debt Agreements and bankruptcy?

There are a number of differences between debt agreements and bankruptcy:

Part 9 Debt AgreementsBankruptcy
  • You're unable to pay your debts when they are due.
  • You haven't been bankrupt, had a debt agreement or a personal insolvency agreement in the last ten years.
  • You have unsecured debts and assets less than the set amount $111,675.20.
  • You estimate your after-tax income for the next 12 months to be less than $83,756.40.
  • You're unable to pay your debts when they are due.
  • You're present in Australia, or have a residential or business connection to Australia.
How long it lastsDetails of your debt agreement can appear on a credit reporting agency's records for up to five years or longer.Bankruptcy normally lasts three years and one day but a trustee can extend it as long as eight years. Credit reporting agencies keep a record of your bankruptcy for five years from the date you became bankrupt or two years from when your bankruptcy ends, whichever is later.
Your secured assetsYou must inform secured creditors of your intention with the debts. If you don't maintain payments on secured loans your secured assets can be repossessed.Your trustee can sell your vehicles, house, tools of trade and assets you jointly own with your partner if their value falls below a set amount.
Your ability to obtain credit
  • If you apply for credit over $5,647 you must disclose you are bankrupt.
  • Your bankruptcy remains on your credit file for five years from the date you become bankrupt or two years from the date your bankruptcy ends, whichever is later.
Your businessYou must disclose your debt agreement to people you conduct business with if you trade under a business name that isn't your own.You cannot be director of a company and there may be restrictions if you run your own business. You must disclose your bankruptcy to people you conduct business with if you run your own business that doesn't contain your full name.
Your income No limitations.You may have to make compulsory payments if your after-tax income exceeds $55,837.60. This changes depending on how many dependants you have.
Overseas travelNo limitations.You must request permission from your trustee to travel overseas.
National Personal Insolvency Index (NPII)Your name will appear on this index for a limited period.Your name will appear on this index forever.

How do I know whether a Part 9 Debt Agreement or bankruptcy is right for me?

To work out which road to take to deal with your debt, consider the following:

  • Do your debts meet the criteria? There are eligibility criteria you need to meet for a debt agreement but not for bankruptcy, so you need to ensure your debts are suitable for either option.
  • How much do you earn? Your after-tax income for the next 12 months needs to be less than $83,756.40 to be eligible for a debt agreement.
  • How much do you owe? Your debts need to fall below the threshold to be eligible for a debt agreement.
  • Have you been bankrupt or insolvent before? You are ineligible for a debt agreement if you have had a debt agreement, a personal insolvency agreement or been bankrupt in the past ten years.

Final verdict: Part 9 Debt Agreement or bankruptcy?

Generally, a Part 9 Debt Agreement is more favourable to bankruptcy if you are eligible. You have the same restrictions if you are self-employed and the listing will appear on your credit file for the same amount of time. Debt agreements also come with fewer restrictions than bankruptcy and your assets will only be repossessed if you don't meet your repayments.

However, consider all aspects of both options before deciding which is right for you.

Looking for help with debt?

Rates last updated February 22nd, 2018
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