An informal debt arrangement is where we work with you to develop a plan to manage your debt. We liaise with your creditors for favourable payment terms, with the aim of reducing interest and the balance. We can help you by then managing your payments for you, and you pay one simple payment to us. You still have to pay out your debt, but we do all we can to minimise the costs and make it easier for your to deal with multiple payments.
A debt agreement, also known as a Part IX (9), is a legally binding agreement between you and your creditors. In simpler terms, it is a formal, flexible and managed plan devised to settle your debts by paying an affordable amount of money over a period of time. People who are struggling with a debt but can’t get a loan to assist them are eligible for a debt agreement.
When entering a debt agreement, you are negotiating to pay an affordable percentage of your combined debt over a set period of time. These repayments are made to your debt agreement administrator rather than separately to your creditors. Once the term is up and you have successfully complete your payments, the creditors will not be able to recover the rest of the money you owe.
If you need further clarification on debt agreements and how they may affect your circumstances, contact AFSA Australian Financial Security Authority which is the Government agency that is responsible for overseeing the operation of the Debt Agreement Scheme.
There are a number of differences, however the main one is an informal debt agreement is not a part of the bankruptcy act.
When people are faced with extreme amounts of debt and don’t have enough funds to repay all of these debts, the most common thing they do is declare bankruptcy. However, recent figures show that Australians are favouring debt agreement more than bankruptcy due to its obvious less extreme consequences.