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Part IX Debt Agreements
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| Part IX Debt Agreement |
The information below is a short summary of Part IX Debt Agreements.
Further information is available by selecting one of the headings in the left hand tool bar.
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A Part IX debt agreement is a legally binding agreement between a debtor and their creditors. Debt agreements are a flexible alternative to bankruptcy.
| Who can enter into a Part IX Debt Agreement? |
The debt agreement system is only to be used where the debtor is insolvent, i.e. unable to pay their debts as and when they fall due. It would undermine confidence of the system of credit and the debt agreement system if the debtor were solvent.
A debt agreement can be proposed by a debtor who has -
- Not been bankrupt, utilised a debt agreement or given an authority under section 188 of the Bankruptcy Act in the last 10 years;
- After tax income of less than $66,284.40;
- Unsecured debts of less than $88,379.20;
- Property that would be divisible among creditors if the debtor were bankrupt valued at less than $88,379.20.
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| What are Part IX Debt Agreements? |
An insolvent debtors' best offer to their creditors is determined based on an analysis of their expected income from all sources, household expenses and circumstances. The debtor must prepare an achievable and sustainable offer to their creditors.
ITSA ensures proposals comply with the wide range of requirements such as eligibility; clarifying aspects of proposals to ensure creditors are well informed to make a decision on their vote; and conducting the voting process with creditors. ITSA maintains the National Personal Insolvency Index (NPII) to ensure it reflects the status of the agreement.
The debt agreement proposal is sent to creditors to vote upon. It may be accepted or rejected by creditors. A proposal is accepted if a majority of creditors in value vote in favour of the debtor’s proposal.
Some examples of the kinds of proposals offered 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
- A moratorium on payment of debts
- Payment from the proceeds of sale of property owned by the debtor
All creditors with provable debts at the time the debtor’s details are entered onto the NPII are bound by the agreement, even those who voted against the proposal. Creditor’s debts are fixed at the date the proposal was entered on the NPII; interest does not accrue; and creditors cannot take or continue action against the debtor to collect their debts.
The debtor is liable for further debt incurred after ITSA accepts the proposal to send to creditors for voting.
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