What is an Informal Arrangement with Creditors?

Informal arrangements are agreements between you and your creditors that are not bound by legislation or formalised by contract.

To reach an informal agreement with your creditors you will first need to work out a manageable budget to calculate what you can reasonably afford to pay in total towards your combined debts after accounting for your essential living expenses.

Generally, you can work out how much to offer each creditor on a pro-rata basis based on the amount you owe each creditor and negotiate with them individually to seek their agreement to your offer which they are not obliged to accept.

That said, by offering an informal agreement to your creditors you are demonstrating that you are committed to repaying your debts.

In many cases, the informal arrangement does not cover the entire debt and is only a temporary arrangement. For example, if you are:

  • Unemployed
  • Unable to work because of illness or injury
  • Earning less money

If you experience a change in circumstances such as this, maintaining repayments of your debts can become very difficult. In this situation an informal arrangement can be a very useful option for you to consider. An example of an arrangement would be to pay a reduced rate for a specified period of time or in lieu of you finding a new job or getting well.

Considering an Informal Agreement

With an informal arrangement the creditor may still contact the credit reporting agencies and notify them of your current situation. In many cases they will not contact the credit reporting agencies and your credit report will remain clean.

Criteria for a IA

  1. You must be able to prove severe financial hardship.
  2. You must agree on a new repayment arrangement with your creditor.

Advantages of an IA

  • There is no cost to set up an IA. Other organisations can help you set up an IA, but they may charge a fee.
  • Creditors may agree to freeze interest and charges on the debt but this is at their own discretion.
  • You minimise costs with no third-party management fees.

Disadvantages of an IA

  • You are responsible for making all the agreed repayments and keeping your creditors up-to-date about your finances.
  • Your creditors don’t have to accept your IA and can cancel it at anytime.
  • If your financial situation gets worse, for example, you lose your job, you can try to negotiate another arrangement. If your circumstances improve, your creditors may expect you to increase your repayments.
  • Your creditors can still contact you.
  • Creditors, including bailiffs, have the right to continue action.