A Guide to Part 9 Debt Agreements
Part 9 Debt Agreements are the most commonly used personal insolvency option for individuals on a low to moderate income in Australia. It will enable you to pay your creditors a percentage of what you owe them by way of affordable monthly repayments. The difference being, you will not be bankrupt.
Prior to entering into a Part 9 Debt Agreement, it is important to understand how they work and their advantages and disadvantages when compared to other types of insolvency.
The Part 9 Debt Agreement process
Submitting a Debt Agreement proposal involves setting out exactly how much you can afford per month, and the percentage of your debt you are willing to pay back. This agreement then goes to meeting with your creditors for discussion and approval.
As with bankruptcy, the appointment and actions of the Administrator are overseen by a trustee, as listed on the ASIC Register of Registered Debt Agreement Administrators.
How does Part 9 Debt Agreements differ from other forms of bankruptcy?
Like all forms of personal insolvency, the submission of a Debt Agreement Proposal is the process of putting you on record as unable to pay your debts. While they have become the most popular insolvency option, their popularity is based on the low level of attachment to them once the repayments end. At the end of the Debt Agreement, you no longer have any remaining liability for the debt that is included.
This may seem like a cheap and easy option for getting out of debt, but there are serious eligibility criteria if you ever plan to use Debt Agreements to get out of a difficult situation. You could also end up paying more than you would with other options.
Consider the following:
One of the main reasons for this is the level of supervision of the Debt Agreement that your professionals are placed under, both by the Court and by your creditors. While the administration of Bankruptcy may seem restrictive, and come with many reputational issues , Debt Agreements also come with more ongoing and severe restrictions than other forms of personal insolvency.
While the fact that Part 9 Debt Agreement administrators are registered and audited may appeal to those who are concerned that they are "taking a shortcut" to getting out of debt, the truth is that they also face far more scrutiny than other insolvency professionals and come under so many prohibitive measures that creditors are often free to submit information to the Insolvency Trustee or register their disapproval for the Proposal without having to prove their claims. For instance, creditors are free to ask your Trustee to provide them with records of the governance of your Debt Agreement. This includes information such as:
With this level of expectation, you should not choose a Debt Agreement without having strong grounds to believe your circumstances will not change and you can afford the repayments for the duration of the agreement. Voluntarily withdrawing from the agreement can result in bankruptcy declarations and attachment to your record for a minimum of seven years.
When you apply for a Debt Agreement, you make a commitment to paying a sum that has been agreed between you and your creditors. The amount you agree to pay will be distributed among the creditors and is usually paid by your monthly installments.
In addition, in Australia, creditors cannot harass debtors, or attempt to recover debts outside of the agreed terms.
Despite the heavy regulations, the substantial administration, and the various other limitations that tenants undertaking a Part 9 are subject to, Debt Agreements can be an excellent option, as long as you know that you will be capable of the repayments for the term of the agreement and do not have any outstanding debts to be paid to the Government, including taxes and fines.
If you would like to learn more about Debt Agreements and check if you are eligible, or you would like to discuss any other options, please contact us today.
Part 9 Debt Agreements and Rental Applications
When you sign a Part 9 Debt Agreement and you sign a rental agreement, the penalty is the loss of goods secured by the rental agreement. So whilst it is not illegal to apply for a rental, the consequences can be severe.
As a general rule you must disclose to a real estate agent if you are bankrupt or are under a Part 9 Debt Agreement as this may affect the landlord’s decision.
The first thing you should do is read the rental agreement. There are provisions within the rental agreement that allow landlords to terminate the agreement if you default or if you have been bankrupt or are under a Part 9 Debt Agreement.
You may still apply for the rental but it is advisable to bear in mind the following things: If you don’t disclose your status – you are in default. If you are not certain, you can get independent advice on whether or not your status as a Part 9 debtor should or even can be disclosed.
Whilst it is not illegal to apply for a rental whilst you are under a Part 9 Debt Agreement, the ramifications can be very serious.
Part 9 Debt Agreement and Tenants’ Rights
Common among those who may have entered into a Part 9 Debt Agreement are renters who feel they can no longer pay their debts after a financial hiccup resulting in costly changes in their employment or reduced hours. Some tenants may even find themselves in a situation where their tenant’s lease agreement is up for review and are declined the opportunity to continue renting on the grounds they are bankrupt. It may be post bankruptcy where they decide to move or can no longer afford to stay, but the same issues arise when it comes to Amendment and Extension Clause of a Tenancy Agreement.
As a tenant, you have certain rights under your tenancy agreement which are applied under the Residential Tenancies Act 1987 (WA). One of these is the right to remain in your lease until the agreement is over without the grievance of being discriminated against because of your bankruptcy status.
The Residential Tenancies Act 1987 (WA), part 4, section 65, states the following:
(1) A landlord shall not refuse to enter into a residential tenancy agreement with a tenant or prospective tenant or expel the tenant from the residential premises on the ground —
(a) that the tenant or prospective tenant is bankrupt or has lost the capacity to pay debts; or
(b) that the tenant or prospective tenant is so bankrupt or has lost his or her capacity to pay debts and the money due and owing by him or her in respect of a previous tenancy is not duly paid —
if the amount of rent due and payable under such previous tenancy does not exceed the sum of $2 500 or twice the amount equivalent to a rental payment under a previous tenancy for a period of 4 weeks, whichever is the lesser.
There are certain exceptions to your rights as a tenant under this legislation; however, it is highly unlikely that they would apply to your situation as an individual commercial tenant. However, there are other avenues available to a tenant who believes they have been discriminated against. Should you find yourself in this situation, seek legal advice from a professional in tenancy law.
Renting While Under a Part 9 Debt Agreement
There are some strategies that a tenant under Part 9 Debt Agreement may want to consider to improve their chances of getting into a rental property. Whist the tenant cannot guarantee that their application will be accepted, there are some ways that they can enhance their application. These include:
Providing references from previous landlords As mentioned previously, the tenant will have some history with the landlord from their previous rental history. The tenant will also have a rental ledger which records the tenant’s rental history which can be provided to the landlord. A positive rental history will assist in giving the landlord comfort.
Offering to pay a larger rental bond A landlord will typically request a four-week rental bond being retained and held with the Bond Board during the tenancy period. As an alternative, a tenant can offer to pay a six week rental bond up front. The intention behind this is that a landlord who is receiving a large bond at the outset will be less concerned with the tenant defaulting on their rental amounts . Further, the larger bond will be a form of pre-commitment to the tenant to pay their rent in order to retain the rental property.
Negotiating with a landlord to allow a Part 9 Debt Agreement tenant to meet the lease terms It may be possible for a tenant to enter into an agreement with the landlord to permit flexibility in the disbursement of rental payments. For example, if the tenant receives their salary paid on a twice monthly basis, they may propose to pay their rent twice monthly. Or alternatively, the applicant may deposit rent funds into a bank account and authorise the bank to debit the account for the rent amount when the rent is due. This would allow the applicant to pay the fair market value rent during their tenancy. Although a tenant may wish to negotiate a variation to the lease terms, the landlord is not obliged to accept such variation and they have the right to require the tenant to pay rent in advance. All landlords will have their own processes for assessing applications and responding to offers.
Financial Tips for tenants with Part 9 Debt Agreements
Financial Management Tips for Tenants under Part 9 Debt Agreements
As a tenant or prospective tenant with a Part 9 Debt Agreement, you must keep in mind you have a legal obligation to maintain your payment arrangements. The regular payment of rent is a priority debt and is generally considered an express or implied condition of your tenancy.
Due to the nature of Part 9 Debt Agreement payments any insolvency practitioner acting in the role as your administrator can only help you if you keep them in the loop. If you can foresee any problems meeting your payment schedule for rent or the agreement, you must act fast to discuss your options.
If you cannot afford to pay your rent but can keep up with your Part 9 Debt Agreement payments, meet with your landlord about reducing the rent until your circumstances improve. If you can afford to satisfy both arrangements you will be fine.
It is essential that you maintain good communication with your landlord. If you seem like a good tenant and have an amicable relationship, you may get a temporary reduction in your rent while securing new employment or waiting for your current budget to have some flexibility. If the tenants or applicants you are competing against for rental properties are having issues like insolvency, you could be at an advantage.
Part 9 Debt Agreements and your rental history
A Part 9 Debt Agreement is included on your credit report and is therefore something you need to disclose both to the liquidator and to your landlord.
Not disclosing a Debt Agreement could mean that you have breached you rental agreement, which exposes you to loss of your rental property . This may also make it more difficult for you to secure future rental property as landlords may be wary of renting to someone who had to enter into a Debt Agreement.
Once you have successfully completed your Debt Agreement, you should get these listings removed from your credit report and then retain a copy of your release from the liquidator permanently so you have it on hand should a landlord have an issue with your rental history in the future.