What is a Part IX (“Nine”) Debt Agreement?
Part IX of the Bankruptcy Act allows you to enter into to an arrangement with your creditors to satisfy your debts without being declared bankrupt, often for payment of an amount that is less than that which you actually owe.
Why choose a Part IX Debt Agreement?
Part IX Debt Agreements aim to provide a solution for both you and your creditors. In proposing a Part IX agreement, you would be looking for relief from the pressure of your debts and to avoid the restrictions and stigma of bankruptcy. Your creditors would be looking to ensure a controlled distribution of your funds or assets, to maintain a source of income, and to receive a higher dividend than they would be likely to in the event of your bankruptcy.
What are the benefits of a making a Part IX Debt Agreement?
Making a Part IX Debt Agreement with your creditors means that you will have scheduled a weekly, fortnightly or monthly debt repayment based on your ability to pay. This results in halting the immediate interest and collection action by your creditors, as well as any legal actions, wage garnishees and any other form of debt collection.
Am I eligible to propose a Part IX Debt Agreement?
You are eligible provided that: (1) you are insolvent, that is you are unable to meet your financial obligations as and when they are due for payment, (2) have not within the previous ten years been declared bankrupt or given an authority under Part X of the Bankruptcy Act, (3) you have unsecured debts, equity in assets and after-tax income for the coming twelve months all less than certain indexed amounts described below, and (4) you pay the indexed lodgement fee.
What are the indexed amounts for Part IX eligibility?
The indexed limits for unsecured debts, equity in assets and after-tax income for Part IX eligibility purposes are undated and published twice yearly on the AFSA website at www.asa.gov.au/ For example, as at July 2016, you cannot propose a debt agreement if your unsecured debts and insecure assets including equity in divisible property is more than $109,036 and if your after-tax income for the coming year is more than $81,777.
What are the possible consequences of proposing a Part IX Debt Agreement?
By proposing a Part IX Debt Agreement you will have committed an act of bankruptcy. You will gain relief from the demands of creditors during the voting period, when they cannot take debt recovery action or enforce a remedy against you or you or your property, and any garnishee must suspend deductions on your income. However, if your creditors do not accept your proposal, a creditor can use this to apply to court to make you bankrupt, evoking the serious consequences described above under BANKRUPTCY. In any event, during the voting period, your name and other details will be recorded for a limited time on the National Personal Insolvency Index (NPII), and depending on whether your debt agreement proposal is accepted by creditors, your ability to raise further credit will be affected, and details may appear on a credit reporting agency’s records for up to 5 years and longer in certain circumstances. However, if your proposal does not result in you reaching a debt agreement, the details of your proposal must be removed from credit reporting agency records.
What would I include in making a Part IX proposal?
In most cases a Part IX proposal is an offer to pay all your creditors an amount that is usually less than that which you actually owe, over a given period of time. It is in effect for a for a moratorium from your creditor’s recovery actions on the basis of payments from your income, or of payment of a lump sum of funds from you or from a third party. It may include the sale of plant and equipment, real property, stock or other assets, or the transfer of specified property to specified creditors. After you have made your proposal, your creditors will vote to accept or reject it, so you need to be realistic about your circumstances and about your expectations for the future. Your proposal needs to combine a pragmatic assessment of (1) what you can afford, (2) what you believe your creditors would be willing to accept, and (3) what will happen if your circumstances change.
What happens if my Part IX proposal is accepted?
Your agreement begins when your creditors agree to accept your proposal, and you will not be bankrupt. The agreement binds all of your creditors to be paid in the agreed proportion. Unsecured creditors cannot take any action against you or your property to recover their debts, however if you are in default, secured creditors may seize and sell any assets that you have offered as security for credit. The agreement does not release any other person from a debt you owe jointly and creditors may pursue them for the debt.
How would the Part IX Debt Agreement process be started?
You begin the process by preparing a Debt Agreement proposal and the Part IX Statement of Affairs. The proposal must identify the funds and/or property to be available, specify how the property or funds are to be dealt with, nominate a person to administer the debt agreement, and specify how that person will be paid. The Debt Agreement proposal and the debtor’s Statement of Affairs is then lodged with the Insolvency & Trustee Service Australia (AFSA). The proposal may include an authority for AFSA to delegate the responsibilities of putting forward the proposal to creditors and, if the proposal is accepted by the creditors, monitoring the debtor’s compliance with the agreement.
How would the Part IX proposal be put to creditors?
Once the proposal and Statement of Affairs have been lodged with AFSA, the nominated administrator prepares a report to creditors. The report sets out the terms of the proposal and is likely to compare the return that creditors could expect under the Debt Agreement with the financial return they might expect if the debtor were made bankrupt.
How is the Part IX proposal accepted?
A meeting of creditors may be called, but it is more likely that voting will be conducted by mail. A numerical majority and 75% in value of those creditors who participate in the vote must accept the Part IX proposal. Creditors have 25 working days after AFSA accepts the proposal to lodge their vote. If the proposal is accepted, it binds all creditors with debts that existed at the date of the acceptance and includes those creditors who did not take part in the voting process.
How does a Part IX Debt Agreement affect secured creditors?
Secured creditor’s rights under their securities remain intact.
How does a Part IX Debt Agreement affect unsecured creditors?
All creditors with debts that would be provable in a bankruptcy are bound by the agreement, regardless of whether or not they voted to accept or reject your proposal. They are not permitted to take any further action against you or your property, they cannot start fresh proceedings, and they cannot present or further a creditors petition. Upon acceptance of the Debt Agreement, you are released from any debts that would be released in a bankruptcy.
What is the effect of a Part IX Debt Agreement on my property?
The person administering the Part IX agreement is responsible for realising or transferring your assets only if the agreement stipulates the sale of assets or the transfer of specific assets to certain creditors; otherwise there is no effect on your property.
What are the Part IX Debt Agreement trustee’s obligations and powers?
The powers and obligations of the trustee will be set out in the Debt Agreement. In essence, the obligations will be to enforce the terms of the agreement, collect any monies to be paid under the agreement and make a distribution to creditors.
What happens if I fail to satisfy the terms of the Part IX Debt Agreement?
The trustee is obliged to inform your creditors of any default and provide them with the opportunity to terminate the agreement, which would automatically reinstate the position of all of your creditors. Alternatively, a creditor may apply to the Court for an order to terminate the Debt Agreement if the creditor can show that you have not carried out the terms of your agreement and that the termination is in the best interests of your creditors, or if the continuation of the agreement would cause injustice or undue delay to the creditor; or if there are other reasons and it is in the creditor’s interests.
What is the effect of a Part IX Debt Agreement on my income?
Making a Part IX agreement does not affect your income, unless it provides for you to pay a percentage of your income to creditors via the trustee.
Can the trustee of a Part IX Debt Agreement make distributions?
The trustee will make distributions either under the terms of the agreement, or if they are silent, when practical.
What are the costs of a Part IX Debt Agreement?
The fees of the person administering the agreement are set out in the proposal accepted by creditors and are usually paid from the funds paid by the debtor under the agreement.
When does a of a Part IX Debt Agreement end?
Your obligations will end when the terms of the agreement are fully satisfied or else when the agreement is terminated for other any reason.
How would entering a Part IX Debt Agreement affect my credit rating?
Credit reporting agencies will take note that you have entered into a debt agreement, however this may be more favourable on your file than outstanding writs, defaults and bankruptcy.
What government charges are associated with a Part IX Debt Agreement?
The administration attracts a government charge, payable at the rate of 3.5% of gross monies received into the estate, less payments to secured creditors and trade on costs. It is payable in priority to any dividend to creditors.
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