Debt Agreement (Part IX)

A Debt Agreement is a formal alternative to bankruptcy where all your creditors agree to accept part payment of the debts in equal proportions. It’s made under Part IX of the Bankruptcy Act. You must be unable to pay your debts for this type of agreement.

To some people in very limited circumstances, a Debt Agreement can be an effective option, but for most people it may be better to consider other options.

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COVID 19 changes – There have been no changes to Debt Agreements

Considering a Debt Agreement (Part IX)

Debt Agreements are complex and can have serious and far-reaching consequences. So it’s important that you have personal, tailored advice before you make any decisions. This page contains simple and general information only.  If you’re considering a Debt Agreement, speak to a free financial counsellor on 1800 007 007 for a discussion about your personal situation.

A Debt Agreement is an insolvency agreement under the Bankruptcy Act. It is an act of bankruptcy. It should only be considered as a last resort.

Before considering a Debt Agreement, speak to a free financial counsellor and consider other options.

Debt Agreements are only suitable for people in very specific circumstances.

In general, you should only consider a Debt Agreement when the following applies:

  • you have significant assets to protect (like a home)
  • you’re a company director and need to remain a director
  • you have income above the contribution rate for bankruptcy
  • you can afford to repay the debt agreement
  • you have numerous debts

A Debt Agreement has a term of 3 years but the term can be up to 5 years if you own a home. Debtors are released from most debts on completion of all payments and obligations under the agreement.

However, since it’s an act of bankruptcy, if your creditors don’t accept the Debt Agreement or the Debt Agreement is terminated, they can use it to apply to the court to make you bankrupt.

How much you pay back

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.



To be eligible you must:

  • not have been bankrupt or had a debt agreement in the past 10 years
  • have unsecured debts of less than a specified amount*
  • have non-exempt assets valued at less than a specified amount*
  • expect that your after-tax income for the next 12 months will be less than a specified amount*
  • be able to afford the repayments under the Debt Agreement

The complete eligibility criteria are on Australian Financial Security Authority (AFSA)’s website.

* Refer to AFSA’s Indexed Amounts for these values.


Many debt agreement administrators aggressively promote their services. Some charge very high fees for services that you may not need and some administrators may not work in your best interests. It is essential that you completely understand the consequences of a debt agreement. There may be other options available for dealing with your debt.

Call us on 1800 007 007 before speaking with these for-profit companies.

Risks of Debt Agreements (Part IX)

It's an act of bankruptcy

Making an application for a debt agreement is an act of bankruptcy, which means your creditors can apply to bankrupt you if they don’t accept the proposal.

It's NOT debt consolidation

Despite the advertisements for debt agreements often sounding like they’re offering debt consolidation, debt agreements are not debt consolidation. They are a formal arrangement under the bankruptcy act.

If you want to consolidate your debts and have already tried a mainstream lender, see a financial counsellor to discuss other options.

Difficult to borrow money

Your debt agreement will appear on your credit report and the National Personal Insolvency Index for:

  • 5 years from the date you enter the debt agreement; or
  • 2 years from the date the debt agreement ends

In practical terms, this means you’ll find it difficult to borrow money or get credit for at least 5 years.

High fees

You’ll usually have to pay an upfront fee to a debt agreement administrator to enter a debt agreement, plus a monthly administration fee throughout the period of the debt agreement.

Employment restrictions

Professional bodies and/or trade associations may have certain conditions of membership for the duration of the agreement. There may be restrictions on holding some statutory positions during the period of the agreement.

Operating a business

You can operate a business unless the terms of the agreement provide otherwise. But if you trade under a business name or an assumed name, you have to disclose the debt agreement to every person you deal with.

There are no restrictions on being the director of, or otherwise managing, a company.