What is a Part 9 debt agreement?
A debt agreement is a formal arrangement under Part 9 of the Bankruptcy Act, where you agree with your creditors to repay a portion of your debts over time. According to the Australian Financial Security Authority, an agreement can run for up to three years, or up to five years if you own your home.
It's an act of insolvency and it's recorded on the National Personal Insolvency Index, so lenders will see it. It also appears on your credit report.
Getting a home loan after the agreement is finished
A completed debt agreement shows you honoured a commitment to your creditors, and specialist lenders give that real weight. Bring your completion certificate and show a clean record since, and you'll find more doors open with every month that passes.
Refinancing during a debt agreement
If you own a home with equity, paying out your debt agreement in full through a refinance can end it early. Some specialist lenders will do this, usually with conditions: the agreement is paid out at settlement, your repayments on the new loan are affordable, and there's enough equity left after everything is cleared.
Done right, it can replace a debt agreement and your other debts with one home loan repayment. Done wrong, it can stretch short-term debt over 30 years. We'll show you both sides.
Debt agreement versus bankruptcy
Lenders generally see a completed debt agreement as less serious than a bankruptcy. If you're weighing up options with a financial counsellor, that's worth knowing. If you're already past bankruptcy, see home loans after bankruptcy.
A worked example
A homeowner entered a five-year debt agreement two years ago after a run of illness. Her repayments under the agreement are up to date, she's back at work full time, and her home has grown in value.
A specialist lender refinances her mortgage, pays out the remaining amount owed under the debt agreement at settlement, and leaves her with a single home loan repayment lower than her old mortgage plus agreement payments combined. She plans to refinance again to a mainstream lender once the agreement has dropped off her credit report.
Questions to ask your administrator
- What is the exact payout figure for the agreement today?
- How long will the payout take to process once funds arrive?
- Will you issue a completion certificate as soon as the agreement is paid out?
- Are there any fees for paying out early?
Lenders will want these answers in writing before settlement.
Before you sign a new debt agreement
If you're considering a debt agreement now and you own a home with equity, it's worth talking to a financial counsellor about all your options first, including whether a refinance could consolidate your debts without an insolvency record. The National Debt Helpline (1800 007 007) is free.
What you’ll need
- Photo ID
- Debt agreement details and completion certificate
- Credit reports
- Income evidence
- Bank statements
- Current loan statements if refinancing
Who it usually suits
- Completed, or paying out, a Part 9 debt agreement
- Clean conduct since
- Income that supports the loan
- A deposit or equity
- Australian citizen or permanent resident
