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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.

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, call us on 1800 007 007 for a discussion about your personal situation.

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

  • you've seen a financial counsellor and considered other options
  • you have significant assets to protect
  • you're a company director and need to remain a director
  • you have income above the contribution rate for bankruptcy
  • you have numerous debts

A Debt Agreement is an option to assist you with unmanageable debt and is an alternative to bankruptcy. 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, they can use it to apply to the court to make you bankrupt.

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

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.

 

Eligibility

To be eligible you must:

  • not have been bankrupt or had a debt agreement in the last 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*

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

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

Beware of aggressive commercial operators

Many debt agreement administrators aggressively promote their services. Some charge very high fees for services that you may not need and may work to your disadvantage. It is essential you have a full and complete understanding of the consequences of the debt agreement. There may be other available options for dealing with your debt.

Call us on 1800 007 007 before dealing with these operators.

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 you 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.

Expensive 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 that you deal with.

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