Financial hardship can be caused by a number of different circumstances, such as ill health, relationship breakdown or loss of employment. It's important to recognise any financial difficulties early so that you can immediately take steps to stop the debt from getting out of control.  

If you are suffering financial difficulty and find yourself unable to repay your debts, there are a number of formal options available to you under Australian bankruptcy laws. There are also informal options available to consider and it's always a good idea to exhaust all informal options first before considering formal options under the Bankruptcy Act

  1. Informal options

Before you think about choosing any of the formal options under bankruptcy laws, you should try to informally negotiate with each creditor (the person or institution you owe money to). Read more about how to handle debt collectors. 

There is also free help available. You can talk to a financial counsellor from anywhere in Australia by phoning 1800 007 007 (minimum opening hours are 9.30 am – 4.30 pm Monday to Friday).

  2. Formal options

There are 3 formal options available under the Bankruptcy Act:

  1. Personal Insolvency Agreements - a formal agreement with your creditors to repay your debt. A controlling trustee is appointed to manage your property and financial affairs;

  2. Debt Agreements - a formal agreement between you and your creditors to repay by a lump sum or instalments. A proposal must be accepted by most of your creditors; or

  3. Bankruptcy - the process by which the State takes possession of the property of a bankrupt. The property is then distributed, on a scale, to creditors.

Bankruptcy has serious consequences and you should always exhaust all informal options first. 

  3. Debt Agreements

A formal debt agreement is a legally binding agreement between you and your creditors under the Bankruptcy Act.  

Read more about Debt Agreements  or Download the Debt Agreement kit. 

  4. Personal Insolvency Agreements

A Personal Insolvency Agreement is a Deed or agreement to facilitate arrangements between debtors and creditors, which protect the debtor from bankruptcy, but ensure that creditors receive a benefit. 

If you would like to apply for a PIA yourself, you can download our easy to complete DIY kit. 

  5. Bankruptcy

If you are unable to pay your debts and cannot come to a suitable repayment arrangement with your creditors, you can lodge a petition to become bankrupt (called a debtor’s petition). A creditor may also take action to have you declared bankrupt by order of the Court (called a sequestration order).

If you want to apply for Bankruptcy yourself, you can download the easy DIY kit. 

  6. Which option should I choose?

It's always best to approach your creditors first and try to work out an informal arrangement to repay your debt before considering any formal options. If all possible informal options have been exhausted, there are the 3 formal options under the Bankruptcy Act to consider. 

Each option has its own advantages and disadvantages. You should ensure that you understand what each option means, the eligibility requirements and the advantages and disadvantages, relevant to your specific circumstances.

Our Debt Management kits are affordable and include help with informal options and all formal options available, written in a simple to follow format. Or you can talk to a FREE financial counsellor from anywhere in Australia by phoning 1800 007 007. If you need help choosing the right option, you should seek professional advice. 


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.

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