Debt agreements

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 future.

What is a debt agreement?

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. You should seek independent advice to make sure a debt agreement is the right option for you.

Things to consider before getting a debt agreement

Make sure you've considered all the options available to you before getting into a debt agreement.

This may include talking to your creditors to see if they can give you more time to pay, to negotiate a repayment plan or to see if they'll 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. There are some debts that cannot be covered by debt agreements.

Video: Unmanageable debt - Compare your options

Video about comparing your options

Effie Zahos from Money Magazine explains the options you have for dealing with debt. For more information visit the AFSA website.

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 Authority's (AFSA) website.

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 agreement.

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 3-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 check before entering a debt agreement

If you're considering entering into a debt agreement, be wary of companies who don't carefully assess your individual circumstances. Here are some others to look at before you sign a debt agreement:

  • Check the administrator is registered -  It's important to check that the person you're dealing with is on the Australian Financial Security Authority's list of registered debt agreement administrators.
  • Check the fees of the administrator -  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.

Debts that can't be covered by a debt agreement

There are some debts that can't be covered by a Part IX debt agreement or have special conditions if they are included.

Secured debts

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.

Joint debts

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 finished:

  • Debts incurred by fraud
  • Child support
  • Fines, penalties or other court-ordered payments
  • Student HECS or HELP, Student Financial Supplement Scheme debts

Overseas 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 the contract.

The impact of a debt agreement

Here are some of the things that can be affected if you decide to enter into a debt agreement:

  • Your public record - Your name and other details will be listed on the National Personal Insolvency Index (NPII) for 5 years or more. 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 circumstances.
  • 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 the credit limit 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 professional body.
  • 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. 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.

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Last updated: 05 Jul 2019