Bankruptcy and Part IX Basics: What you should know
Bankruptcy and Part IX are complex legal arrangements that should be carefully considered if you find yourself in financial hardship. It’s important to consider that there are many alternatives to both, when looking for ways to resolve your debts.
These agreements can be costly and have wide-ranging repercussions to your life and career so always consult independent advice before deciding.
Way Forward does not offer services tied to Bankruptcy or Part IX – we offer payment consolidation and debt management without having to enter bankruptcy or Part IX agreements. With Way Forward, you enter a long-term debt arrangement, which is different to Part IX, which is a formal debt agreement.
The information provided here is not financial advice. We recommend you speak with our team, a financial counsellor or local community legal centre to find out what options might be suitable for your circumstances.
Way Forward offers debt arrangements that are an alternative to Bankruptcy and Part IX. As a result, we are asked questions regularly about Bankruptcy and Part IX, so we wanted to offer a simple guide for anyone to understand the basics.
What is Bankruptcy?
Bankruptcy is a legal declaration that you’re unable to pay your debts. However, under some bankruptcy arrangements, you will still need to make repayments.
Bankruptcy is just one formal option available under the Bankruptcy Act and is regulated by the Australian Financial Security Authority (AFSA). We refer to their official guidance throughout this page.
AFSA also have a useful video that explains the consequences of bankruptcy, which we recommend checking out.
What is a Part IX or Debt Agreement?
A Part IX, also called a Debt Agreement, is a formal arrangement between a person and their creditors, which is legislated under the Bankruptcy Act. It is a government monitored scheme and managed by a Debt Agreement Administrator of your choice.
What steps should you take in financial difficulty?
Depending on your circumstances, if you’re unable to meet your debt repayments, there may be alternatives to Part IX and Bankruptcy. We recommend considering all options carefully and speaking with a financial counsellor or community legal centre to better understand the right option for your situation.
Even though it’s stressful being in a situation where you can’t pay off debts, it pays off to weigh up all options carefully to ensure you’re making the best decision.
What are the other options to Bankruptcy or Part IX?
In some cases, Bankruptcy or Part IX is the appropriate course of action, however, it’s useful to be aware of other possible pathways to dealing with unmanageable debt. These include:
- Apply for Government benefits or emergency assistance
- Enter an ‘informal debt agreement’ with a third party, which includes:
- Payment consolidation and long-term debt management (offered free of charge by Way Forward): We negotiate repayment plans with your creditors and take one reoccurring payment from you that is then distributed to your creditors. It is important to note that we are not a debt consolidation service, so you still hold those debts. We charge no fees and work alongside our clients to find a manageable way out of debt, 100% free of charge.
- Working with a for-profit debt management / debt consolidation company: Many for-profit operators offer services that can include managing your debts, helping you consolidate your loans or applying for bankruptcy. High fees are attached to such services, so it makes sense to explore free of charge options first.
- Request financial hardship from your creditors: A person is in financial hardship if they have difficulty paying bills and debt/loan repayments on time. The National Debt Helpline has a helpful guide on the steps involved and your legal rights under the credit law.
- Debt consolidation loan: This combines all debts into one personal loan with one lender. This means one loan is repaid using one payment and a repayment term that will eventually see the debt cleared. Lenders may offer this option so all debts will be transferred to them. That one lender receives the interest from those repayments. The full principal amount owing on all the loans still needs to be repaid.
- Get more credit: There are many reasons we don’t recommend getting more credit when in hardship. Most importantly, this will likely make matters much worse. Read more about credit card debt here.
- Seek free support services from charities and community organisations. See where you can get emergency funding.
- Seek free support from as a financial counsellor
What happens when you go bankrupt?
In practical terms, being bankrupt means no longer paying off the remainder of any unsecured debts.
Bankruptcy is a last resort, and we recommend carefully considering alternatives. Bankruptcy has many long-term implications to your life and career and doesn’t cover all debts. Check out the Australian government’s website for detailed information about bankruptcy.
Bankruptcy can be entered into voluntarily or a person can be made bankrupt through a court process. This is sometimes called forced bankruptcy.
As part of this process, a Trustee will be appointed or assigned. This trustees will have significant power to determine what happens to a person and their assets.
What are the consequences of going bankrupt?
Before going ahead, it’s important to be aware of the implications of bankruptcy.
These include but are not limited to:
- Some debts might still need to be paid off
- It will be more difficult to obtain credit (for credit above a certain limit, you will need to disclose that you are bankrupt)
- A Trustee can decide to sell your house or other assets
- Bankruptcy is recorded on your credit report
- Your name will permanently appear on the National Personal Insolvency Index (NPII)
- You will not be able to travel overseas without your Trustee’s approval
- You might be restricted from certain professions following bankruptcy such as being an accountant, solicitor or being part of the defence or police force – more information on AFSA’s website
In light of these consequences, considering the alternatives such as payment consolidation, offered free of charge by Way Forward could prove a better alternative. At Way Forward, we take over the negotiations with your creditors and consolidate your repayments into one manageable reoccurring payment.
| Bankruptcy | Formal debt agreement (Part IX) | Informal debt agreement with Way Forward | Informal debt agreements with a debt management company | |
|---|---|---|---|---|
| Eligibility Income threshold | No limitations | $92,683 after tax income
Last updated 20/3/2022 | Must have funds left over after meeting basic living expenses | This will be specific to each company |
| Eligibility Asset threshold | No limitations | Less than $247,156
Last updated 20/3/2022 | No limitations | No limitations |
| Eligibility Debt threshold | No limitations | Unsecured debts less than $123,578
Last updated 20/3/2022 | No limitations | Generally greater than $10,000 |
| How long does it last | Bankruptcy lasts for 3 years. If you have property, it can extend up to 5 years. | Debt Agreement lasts for 3 years. If you have property, it can extend up to 5 years. | No time limit. With Way Forward, they tend to last 2-5 years depending on the client’s situation – so you can have more time to pay off your debts if you need it. | No time limit, depends on the provider |
| What type of debts does it cover? | Most unsecured debts
Secured debts | Most unsecured debts
Secured debts | Most unsecured debts
Secured debts | Most unsecured debts
Possibly secured debts |
| Ability to retain assets | No, unless it is exempt property i.e., household furniture, tools of trade up to a certain value | Yes, unless the terms of the agreement provide otherwise | Yes | Yes |
| Will it impact my employment? | Certain professions and trades may have employment restrictions that may impact the individual’s ability to work.
i.e., accountants, lawyers, company directors, holders of a building licence, electrician Refer to the following link for a more detailed list | Certain professions and trades may have employment restrictions that may impact the individual’s ability to work.
i.e., accountants, lawyers, company directors, holders of a building licence, electrician Refer to the following link for a more detailed list | Not if managed appropriately | Not if managed appropriately |
| Ability to travel overseas | Prior consent of Trustee is required | No restriction | No restriction | No restriction |
| Ability to obtain further debt | Must disclose insolvency if incurring debt or obtaining goods and services above a set threshold currently $6,273 | Must disclose insolvency if incurring debt or obtaining goods and services above a set threshold currently $6,273 | No restriction but advised to discuss first with Way Forward or a financial counsellor | No restriction |
| Who offers this option? | Must be a registered trustee with Australian Financial Security Authority (AFSA) | Must be government approved Administrator. Check the Australian Financial Security Authority’s (AFSA) list of registered Debt Agreement Administrators. | Way Forward is currently the only provider in Australia offering a free informal debt agreement to clients to manage their unsecured debts. | No need to be on the AFSA list of approved administrators so many providers exist with big differences in fees, methods and level of support provided. Be careful who you choose to manage your debts. |
| Can you break off the agreement? | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers.
Consult your administrator in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers.
Consult your administrator in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers.
Consult Way Forward in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers.
Consult your administrator in advance and have a plan before making a choice. |
| What’s the impact on my credit file? | Your name will appear for 5 years on the National Insolvency Index (NPII) and a record of your details is kept on your credit file for up to five years or until the debt agreement is finalised if it takes longer than 5 years. | Your name will appear for 5 years on the National Insolvency Index (NPII) and a record of your details is kept on your credit file for up to five years or until the debt agreement is finalised if it takes longer than 5 years. | There is no mark in the Insolvency Index (NPII).
The new negotiated arrangements will show up as a hardship variation and will appear on your credit report for 12 months. If all new payment arrangements are kept, then they will be shown as up to date on your credit file | There is no mark in the Insolvency Index (NPII).
The new negotiated arrangements will show up as a hardship variation and will appear on your credit report for 12 months. If all new payment arrangements are kept, then they will be shown as up to date on your credit file |
| Will it affect my ability to obtain future credit | Major lenders do not look favourably to lending to someone who has been bankrupt. This leaves only companies that charge a significantly higher rate. | Major lenders do not look favourably to lending to someone who has been bankrupt. This leaves only companies that charge a significantly higher rate. | So long as all negotiated payments are being met lenders may lend in the first 12 months following the hardship indicator being listed but will seek to understand your circumstances to ensure any new credit does not place you into hardship. | So long as all negotiated payments are being met lenders may lend in the first 12 months following the hardship indicator being listed but will seek to understand your circumstances to ensure any new credit does not place you into hardship. |
| How much does it cost? | There is no statutory filing fee.
Typically, approximately 7% of what the client pays goes to government fees and approximately 20% of what the client pays goes to fees to the trustee. | AFSA charges a fee of $200 for lodging a debt agreement proposal.
Normally, there are also other fees involved in proposing and managing a debt agreement, which can vastly vary. Approximately 7% of what the client pays goes to government fees and approximately 20% of what the client pays goes to fees to the administrator. The administrator may charge an initial application fee which can vary. The fees will depend on your administrator and situation so consult independent professionals about your circumstance. | $0, no fees involved for the client at any stage. | The sky is the limit with for-profit operators. They will quote you based on your situation.
Often includes a standard management fee and a % share of debt collected. |
| Key legal considerations? | You will have a Trustee that will administer your bankruptcy estate. | A Part IV Debt Agreement is a legislated, legal and binding agreement between you and your creditors. It falls under Part 9 of the Bankruptcy Act 1966. | There is nothing legally binding in this arrangement between two parties. | There is nothing legally binding in this arrangement between two parties. |
Can I get out of a Part IV?
Yes, you can get out of a Part IX. If you have a debt agreement and would like to apply for bankruptcy, the first step is to contact your Administrator. The debt agreement must end before you can apply but make sure you understand all the consequences before going ahead.
You can choose to terminate your agreement, but your creditors must agree.
Also keep in mind that if you do this, your creditors are free to add any fees and interest and they can then recommence collection activities. It is a good idea to have a plan for moving forward before making the choice to terminate your Part IX.
Should I get out of a Part IX?
This depends on your situation and what options you have available once you terminate. You should seek professional, independent advice about the consequences of terminating your Part IX and how you will manage your debts once your Part IX has been terminated.
What questions should I be asking myself if I want to get out of a Part IX?
If you’re considering ending a Part IX agreement, some questions to ask yourself are:
- Why do I want to get out of the Part IX?
- Can I afford to pay my Part IX?
- Have I considered a variation of my Part IX?
- How will I manage my debts once the Part IX has been terminated?
Who can help me with a Part IX?
Way Forward doesn’t manage Part IX agreements, we offer an alternative to a Part IX by offering an informal debt agreement.
Head to the AFSA website for a list of practicing registered debt agreement administrators.
Way Forward helps clients in three simple steps:
Step 1: We evaluate your circumstance and financial situation.
Step 2: We take over negotiations with creditors and act your behalf.
Step 3: We put together a manageable repayment plan and budget. You make one reoccurring payment to us that we then distribute to all creditors, 100% of which goes towards reducing the debt.
If you’re stuck, get help early. Pick up the phone and ask for support.
