Great question, we are often asked this question by our clients.
There are a number of differences however the main one is an informal debt agreement is not a part of the bankruptcy act.
While a formal debt arrangement such as a Part Nine is a the right option for some people in many cases the same result could have been achieved with an informal arrangement, the benefit being among other things the person credit file could have been far less affected. It is important to note that a Part Nine debt agreement is a part of the Bankruptcy Act and most credit providers see little difference between this and a traditional bankruptcy.
This means that while a Part Nine is listed on a credit file, which lasts for five years, a person will find it very difficult indeed to obtain any form of credit. Many people are unaware of this fact when they enter into a Part Nine agreement and they are naturally very disappointed when they learn that even though the term of many Part Nine agreements can be only three years the damage to a credit file can last up to five, in a way people are punished for up to two years after they have been released from the Part Nine as most credit providers will not approve credit while this listing is on their credit file.
With an informal debt agreement no such listing will be recorded on a credit file. This means that in many cases a person can enter into a manageable payment plan with their creditors and preserve their credit rating, it’s really like having your cake and eating it to.
As of March 2014 a credit provider may record on a credit file that an application for hardship has been made however this in itself is not a negative listing and will have far less negative impact than a Part Nine debt agreement being recorded.
With an informal debt agreement payments to credit providers operate in a similar way to a Part 9, With a Part Nine the administer will collect funds from the client and disburse the agreed payments to the creditors. With an informal arrangement, as operated by Just Budget the agreed monthly amount is paid to the company Trust Account and payments are disbursed to the creditors on behalf of the client.
One positive aspect of a formal Part Nine agreement is only 50% of the creditors need to agree to accept a payment arrangement and the balance are required to follow however with an informal agreement all the credit need to comply, in realty given the strict obligations a credit provider must comply with under legal hardship provisions it is unusual for a credit provider to not agree to an informal payment plan.
While it is always a good idea to fully explore all the options available an informal debt agreement can be a great option for many people as they will often be able to achieve their goals without coursing significant damage to their credit file.
Just Budget Pty Ltd