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Bankruptcy and debt agreements

Get advice and understand the risks first

Page reading time: 3 minutes

If you can't pay your debts, you may be considering bankruptcy, or an alternative to bankruptcy called a 'debt agreement'. These are formal legal options available under the Bankruptcy Act 1966.

While these formal options may free you from debt, they will have serious long-term consequences. They could affect your career and your ability to get credit or loans in the future.

Explore all your options first

Before considering bankruptcy or a debt agreement, make sure you explore your other options for dealing with unmanageable debt.

Options could include:

You can get help with these from a financial counsellor.

Call the free National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm.

Financial counsellors can also help you understand the impacts of bankruptcy and debt agreements.

Dealing with unmanageable debt

Effie Zahos from Money Magazine explains the options.


Bankruptcy is the formal process of being declared unable to pay your debts.

When you become bankrupt, you don't have to pay most of the debts you owe. Debt collectors stop contacting you. But it can severely affect your chances of borrowing money in the future.

The consequences of bankruptcy

Once you become bankrupt:

How to declare bankruptcy

See AFSA's apply for bankruptcy.

Debt agreements

A debt agreement (also known as a Part IX debt agreement) is a formal way of settling most debts without going bankrupt.

It's an agreement between you and your creditors — that is, whoever you owe money to.

A debt agreement is for people on a lower income who can't pay what they owe. But it comes with consequences.

How a debt agreement works

With a debt agreement, your creditors agree to accept an amount of money that you can afford. You pay this over a period of time to settle your debts.

Once you've paid the agreed amount, you've paid those debts.

A debt agreement is not the same as a debt consolidation loan or informal payment arrangements with your creditors.

The consequences of a debt agreement

Once you've signed a debt agreement:

Applying for a debt agreement

If you meet AFSA's eligibility criteria, the usual steps are:

  1. You appoint a debt agreement administrator. Make sure:
  2. The administrator helps you prepare a debt agreement proposal, based on what you can afford to pay back.

  3. Your creditors vote to accept or reject your proposal.

  4. If the majority accept it, the debt agreement proposal becomes a debt agreement. All creditors receive the same proportion of what you owe — for example, if you pay back 90% of your debts over five years, each creditor gets 90% of what you owe them.

  5. If the majority don't accept the proposal, there is no debt agreement. However, if your debt is over $10,000, your creditors could apply to make you bankrupt to try to get back what you owe them.

See AFSA's lodge a debt agreement proposal for more information.

Get help before you go ahead

Before making the decision to apply for bankruptcy or a debt agreement, talk to a financial counsellor.

If you need legal advice or if you've already been served with a bankruptcy notice, get free legal advice immediately.