4 Options You Must Understand If You Are In Severe Debt


Debt agreements are an arrangement between you and your creditors (those you owe money to) to pay back their money on a new, agreed, and achievable payment plan. The plan combines all of your current unsecured debt repayments, into one regular payment. The one combined debt will no longer accrue interest, as it will be frozen. In Australia, you can enter into either an informal debt agreement or a formal debt agreement.

1. Informal; or
2. Formal: Two options;
· Part 9 (IX) debt agreement or
· Part 10(X) personal insolvency agreement

The formal agreements are legislated, whereas the informal agreement is purely a new contract. Another major difference is your credit history will be negatively affected and you will have your name entered into the National Personal Insolvency Index (NPII) with the formal agreements. Be mindful that informal agreements are only binding with those creditors who agree. If you have other creditors, they may not agree and force a formal agreement. You should always seek professional advice on your individual situation. There are many Australian registered debt agreement administrators available.

Certain eligibility criteria determine which Formal Agreement you proceed with.

To be eligible for a part 9 you must:

• Never have been bankrupt or had a debt agreement in the past 10 years
• Have unsecured debts of less than $95,386.20
• Own property valued less than $95,386.20; and
• Expect that your after-tax income for the next 12 months will be less than $71,539.65.

If you do not meet the part 9 guidelines, then you must enter a part 10, which costs more to arrange. These figures are updated twice yearly by the Insolvency and Trustee Service Australia.


Bankruptcy releases a person from almost all of their debts and is a legal process. Although you no longer are required to pay back your debts there are serious consequences that include:

• Restricting your travel or even giving up your passport.
• Your pay/salary can be seized.
• Your credit file will be noted with bankruptcy for 7 years.
• Your assets can be sold at any time without your permission.
• You are only allowed to keep a limited amount of belongings.
• Your job opportunities can be restricted.

Formal debt agreements and bankruptcy are both governed by legislation and will impact on your credit file and ability to obtain credit. If you are ever faced with a severe debt problem, make sure you fully understand the implications of every option you have available and seek as much professional guidance as possible.

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