A serious step
Debt agreements are available to low income earners who cannot
pay everything they owe, but want to avoid going bankrupt. Debt
agreements have serious long term consequences that may affect your
career or your ability to obtain credit in the future.
You should only consider a debt agreement if you have explored
all other options. If you are thinking about getting a debt
agreement make sure you understand exactly what you are agreeing to
and the effect it can have on your ability to obtain credit in the
What is a debt agreement?
Talk to a free and independent financial
counsellor before you take on a debt agreement as there
may be better and cheaper options to manage your debts.
A debt agreement is a binding agreement
between you and your creditors and falls under Part IX of the Bankruptcy Act 1966.
Under a Part IX debt agreement, your creditors agree to accept
an amount of money that you can afford to pay, over a set period of
time, to settle your debts.
Once you have paid this money your creditors cannot recover the
rest of the money you owe.
A debt agreement is not a consolidation loan or an informal
arrangement with your creditors.
Things to consider before
getting a debt agreement
You should ensure that you have considered all the options
available to you before getting into a debt agreement.
This may include talking to your creditors to see if they could
give you more time to pay, negotiate a repayment plan or see if
they may accept a smaller payment to settle the debt.
You can contact your creditors directly or you can ask for free
help from a community legal centre or a
financial counsellor. They
will talk to you about your options and may speak to creditors on
your behalf, help with budgeting advice or give you advice about
other sources of government assistance.
Debt agreements do not release you from all types of debt. Here
are some types of debt not covered by debt
How a debt agreement works
If you meet the eligibility criteria, a debt agreement
administrator will help you prepare a debt agreement proposal,
based on what you can afford to repay. The eligibility
criteria are on the Australian Financial Security
The proposal will be sent to each of your creditors and they can
vote to accept or reject your proposal. If the majority of
creditors accept your proposal then the debt agreement will start
and all creditors will have to accept the terms of the
All creditors will receive the same proportion of the amount you
owe. For example, if you propose to repay 90% of all your
outstanding debts over a 5-year period, then all creditors will get
90% of what you owe them.
Proposing a debt agreement is a serious step. It is an act of bankruptcy and if
the debt agreement is not accepted by your creditors they can use
the proposal to apply to the court to make you bankrupt.
What to look out for
Be wary of companies promoting debt agreements who don't
carefully assess your individual circumstances.
Check the administrator is
Before you sign a debt agreement it is important that you check
that the person you're dealing with is on Australian Financial
Security Authority's list of Registered debt
Check the fees
Administrators usually charge fees for their services. The fees
can consist of upfront fees and ongoing fees and these can add to
your total debts. Find out more on choosing a debt agreement
administrator on the ASFA website.
Debts not covered
There are some debts that can't be covered by a Part IX debt
agreement or have special conditions.
A secured debt is a debt that is tied to an asset. For example,
a home loan is usually secured by a property. If you are unable to
repay a secured debt the lender may take the asset and sell it to
recover the money you owe them.
If the asset is sold and the money is not enough to cover the
debt, the money still owing could be part of a debt agreement.
If you have a debt in joint names and your partner is unable to
repay their share of the debt, the creditor can ask you to repay
the outstanding amount.
In this situation the creditor can receive money as part of the
debt agreement but still has the right to recover the balance of
the debt from any other borrowers.
Debts that continue after a debt agreement has finished
Some debts cannot be paid out by a debt agreement. You will
still be liable for these debts after a debt agreement has
- Debts incurred by fraud
- Child support
- Fines, penalties or other court-ordered payments
- Student HECS, HELP, Student
Financial Supplement Scheme debts
If you have an overseas debt, the overseas creditor is allowed
to be part of the debt agreement process. Whether you will be
liable for any outstanding balance when the debt agreement has
finished will depend on the laws in the country where you signed
a debt agreement
Here are some of the disadvantages you should be aware of before
you enter a debt agreement:
- Your public record - Your name and other
details will be listed on the National Personal
Insolvency Index (NPII) for 5 years from the date of the
agreement or 2 years after the end date, whichever is later. Where
your proposal is withdrawn, not accepted or lapses, the information
will only appear for a year. The NPII is a public record managed by
the Australian Financial Security Authority (AFSA).
- Your future credit - Your debt agreement will
be listed on
your credit report for up to 5 years or longer in some
- Telling new creditors - You must tell a new
creditor about the debt agreement when you take on new debt or
obtain goods and services over a certain amount. You can find out
amounts on the AFSA website.
- Your business - If you have a business and are
trading under another name, your debt agreement must be disclosed
to anyone who deals with your business.
- Your career - It may prevent you from
practising certain professions or being employed in certain
positions of trust. If you belong to a regulated profession you
should check the impact of your insolvency with the relevant
- Possible bankruptcy - Proposing a debt
agreement, whether it is accepted or rejected by your creditors, is
an act of bankruptcy. If you propose a debt agreement
that is not accepted by your creditors, they can use the act of
bankruptcy to apply to the court to make you bankrupt.
Part IX debt agreements are formal agreements
under the Bankruptcy Act and are listed on the public record for a
number of years. A debt agreement should only be considered after
you have got independent advice to make sure it is the right option
Last updated: 01 Apr 2016