If your business is a sole trader business or you are in partnership with someone else then your options are very different to those of a company.
As a sole trader you personally guarantee all the debts of your business and are personally responsible for paying them.
If your business has collapsed or is collapsing then you have the following options available to you:
- Part IX Debt Agreement
- Part X Debt Agreement
- Bankruptcy
What is a Part IX Debt Agreement
A Part IX (9) Debt Agreement is a legally binding agreement between you and your creditors and can be a flexible way to come to an arrangement to settle debts without becoming bankrupt. NB: There is strict eligibility criteria for you to enter into a Part IX debt agreement.
How debt agreements work
- You negotiate to pay a percentage of your combined debt that you can afford over a period of time.
- You make repayments to your debt agreement administrator, rather than individual payments to your creditors.
- After you complete the payments and the agreement ends, your creditors can’t recover the rest of the money you owe.
A debt agreement may be a suitable alternative to bankruptcy
- It can benefit your creditors as they may receive more money than if you were to become bankrupt.
- It can provide relief if you’re unable to manage your debts, but there are some consequences which may affect you.
- Be aware that there are limits to the amount of debt and income you can have to be eligible.
Debt agreements are not:
- consolidation loans or agreements to borrow money
- able to release you from all types of debts—some debts you will still need to pay.
Before entering a debt agreement
Seek advice
Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt.
What is a Part X debt Agreement?
A Part X is also a type of personal insolvency agreement. Like a Part IX it is a repayment schedule which is negotiated with your creditors, but a Part X lends itself to people in a more complicated debt situation.
Unlike a Part IX Debt Agreement, there is no eligibility criteria for a Part X, which makes it suitable for people with high debt amounts and people who are higher income earners. Because the process is longer and more involved, it allows debtors to propose settling their debt in a reduced lump sum and other methods.
What is Bankruptcy?
Bankruptcy is a legal process where you’re declared unable to pay your debts. It can release you from most debts, provide relief and allow you to make a fresh start.
You can become bankrupt 2 ways. These are:
- Voluntary Bankruptcy: To do this you need to complete an in depth Bankruptcy Form application.
- Creditors Petition: When someone you owe money to (a creditor) makes you bankrupt through a court process.
Bankruptcy normally lasts for 3 years and 1 day.
Bankruptcy trustee
When you become bankrupt you are appointed a trustee. A trustee is a person or body who manages your bankruptcy.
This can either be the Official Trustee (AFSA) or a registered trustee. You can also nominate a registered trustee of your choice.
Your obligations
When you are bankrupt:
- you must provide details of your debts, income and assets to your trustee.
- your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt.
- your trustee can sell certain assets to help pay your debts.
- you may need to make compulsory payments if your income exceeds a set amount. (Contact us regarding these amounts)
Before entering bankruptcy
Seek advice
Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt.