Are you having trouble managing your debts and dealing with creditors? Debt agreements are one of the formal options available under the bankruptcy laws for an individual to manage their debt and get back on track with their finances. Once you enter into a formal debt agreement, your creditors are no longer able to contact you for repayment of your debts.

Because entering into a debt agreement can have serious and far reaching financial consequences, it's a good idea to consider and compare the advantages and disadvantages before proposing a debt agreement with creditors. 

1. What is a debt agreement?

A debt agreement is a binding agreement between you and your creditors (the companies that you owe money to) under Part 9 of the Bankruptcy Act that sets out how you will repay your debt.

The agreement sets out the amount you can afford to pay and how you will repay that money over time. A debt agreement is not an informal arrangement. It's a formal deed or legal arrangement made in accordance with the provisions of the Bankruptcy Act

Most but not all debts can be covered by a debt agreement. Some debts that are excluded include:

  • Secured debts: these are debts that are tied to an asset, such as a mortgage;
  • Debts incurred by fraud;
  • Fines, penalties and other court ordered payments;
  • Child support;
  • HECS fees; and
  • Jointly owned property. 

2. Am I eligible to apply?

To be eligible to apply for a debt agreement, you must: 

  1. Be unable to repay your debts when they fall due;
  2. Not have been bankrupt or entered into a debt agreement in the last 10 years;
  3. Have unsecured debts of less than $110,892.60 (as at April 2017);
  4. Have an annual income of less than $83,169.45 (as at April 2017);
  5. Pay the lodgement fees to the Australian Financial and Security Authority (AFSA). 

Once the debt agreement proposal has been prepared, each of your creditors are given a copy. Each creditor must then vote as to whether it accepts or rejects the proposal. If your debt agreement proposal is accepted by a majority of your creditors, then the debt agreement can commence.

3. Advantages

Some advantages of entering into a debt agreement are:

  • The amount you repay under a debt agreement is based on what you can afford, not the amount your creditors want you to repay. 
  • Repayments can be flexible and set to your pay cycle. 
  • Any actions for repayment of a debt are cancelled once a debt agreement starts. 
  • The interest on your debts are frozen so amounts paid will reduce your actual debt and not just cover interest repayments. 
  • A debt agreement ends within a 3 - 5 year period, which means you can look forward to meeting the obligation and move forward.
  • You can retain your assets, such as your car, as long as you meet repayments.  
  • It places less restrictions (than bankruptcy) on you in terms of travelling overseas. 

4. Disadvantages

There are disadvantages of entering into a formal debt agreement, such as:

  • You will be noted on the National Personal Insolvency Index (NPII), which is a permanent record of your credit for at least 5 years. 
  • Each creditor has the right to ongoing and updated information about your financial affairs. 
  • A debt agreement administrator can be appointed to accept and manage your repayments. You can nominate a person to be your administrator or you can administer the agreement yourself (this could also be seen as an advantage in some cases). 

The impact and consequences of any formal options under the Bankruptcy Act are serious and you should think carefully about your options before proposing a formal debt agreement to your creditors. 

Before entering into any formal arrangements you should carefully consider all of your options, both formal and informal. First, talk to your creditors to see if you can arrange more time to pay, negotiate a payment plan or to repay a lower lump sum.

5. Other options

There are other options, both formal and informal, to help you manage your debt and get a fresh start. Other formal options under bankruptcy laws include:

Informal options include simply talking to each of your creditors and negotiating an arrangement to pay. This should then be confirmed in writing. All formal options under the Bankruptcy Act have serious consequences so it's important to exhaust all informal options available to you first.

If you have exhausted all of the informal options, overall, a debt agreement is not as serious as bankruptcy or personal insolvency and might be the better option.


This article contains information of a general nature only and is not specific to your circumstances. This is not legal advice and should not be relied upon without independent legal or financial advice, specific to your circumstances.

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