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Understand the long-term impact of bankruptcy and debt agreements, to decide if they're the right option for you.
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:
- asking for more time to pay
- negotiating a flexible payment arrangement
- offering a smaller payment to settle the debt
You can get help with these from a free financial counsellor.
- Call the free National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm. Or live chat, Monday to Friday, 9:00am to 8:00pm.
- Or call the free Mob Strong Debt Help on 1800 808 488. The helpline is open Monday to Friday 9.30 am to 4.30 pm.
Get trusted, independent advice
If you can't pay your debts, you may be considering bankruptcy, or an alternative to bankruptcy called a debt agreement. Other formal options include temporary debt protection or personal insolvency agreements.
These are formal legal options and while these options may free you from debt, they also have long-term impacts. For example, they may affect:
- your ability to get credit or loans in the future
- some employment opportunities
Financial counsellors can also help you understand the impacts of bankruptcy and debt agreements. The Australian Financial Security Authority (AFSA) has an information sheet explaining legal options for dealing with debt and the bankruptcy journey if that is chosen.
It’s important to get independent help that you can trust to help you make the right decision. AFSA warns you to beware of untrustworthy debt advisors that may provide dodgy advice.
What is bankruptcy
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 affect your chances of borrowing money in the future.
You can apply to become voluntarily bankrupt or someone you owe money to (a creditor) can make you bankrupt through a court process.
The consequences of bankruptcy
Once you become bankrupt:
- You stay bankrupt for three years (subject to extension in certain circumstances).
- Your bankruptcy stays on your credit report for five years.
- Your name is on the National Personal Insolvency Index permanently.
- A trustee looks after your affairs and sells certain of your assets to help pay your debts.
- You must ask your trustee for permission to travel overseas.
- You can't be a director of a company without court permission.
- You may not be able to work in certain trades or professions. Learn more about employment restrictions.
- You may need to make compulsory payments from your income while bankrupt.
Learn more about the consequences of bankruptcy.
How to apply for bankruptcy
AFSA provides information for those applying for bankruptcy. See AFSA's apply for bankruptcy if you're voluntarily applying for bankruptcy, and a creditor has made me bankrupt if you've been made bankrupt because of a court order.
Use the Australian Financial Security Authority (AFSA) interactive tool to help you understand how bankruptcy might affect you.
What are 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 available to people who meet the income, asset and liability eligibility criteria. It comes with benefits as well as consequences.
How a debt agreement works
With a debt agreement, your creditors agree to accept an amount of money you can afford. You pay this to your debt agreement administrator over a period of time to settle your debts, generally up to three years. If you own your own home you may be able to propose an agreement up to five years.
Once you've paid the agreed amount, you're released from your 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:
- It's listed on your credit report for five years or more.
- You must tell new credit providers about it if you owe more than the credit limit (see current limits).
- Your name and details of the debt agreement are on the National Personal Insolvency Index for five years or more.
- You may not be able to work in certain professions.
Learn more about the consequences of a debt agreement.
How to apply for a debt agreement
If you meet AFSA's eligibility criteria, the usual steps are:
- You appoint a debt agreement administrator. Make sure:
- they are on AFSA's list of registered debt agreement administrators.
- you know how much they charge.
- you understand exactly what you're agreeing to.
- The administrator helps you prepare a debt agreement proposal, based on what you can afford to pay back.
- Your creditors vote to accept or reject your proposal.
- If creditors representing the majority of debts accept the proposal, the debt agreement proposal becomes a debt agreement. All creditors receive the same proportion of what you owe — for example, if you pay back 40% of your debts over three years, each creditor gets 40% (less costs) of what you owe them.
- If the majority don't accept the proposal, there is no debt agreement.
If your debt is over $10,000, your creditors could apply to make you bankrupt to try to get back what you owe them. For more information, see AFSA's lodge a debt agreement proposal.
Get help before you go ahead
Before making the decision to apply for bankruptcy or a debt agreement, talk to a free financial counsellor.
If you need legal advice or if you've already been served with a bankruptcy notice, get free legal advice immediately.
Learn about other urgent help with money that you may be able to access.