Debt agreement overview

Find out more about what a debt agreement (also called a Part IX agreement) is and what it involves.

A debt agreement is a binding agreement under Part IX of the Bankruptcy Act 1966 between a debtor and their creditors where creditors agree to accept a sum of money which the debtor can afford.  Proposing a debt agreement is an act of bankruptcy.

A debt agreement is an option to assist debtors with unmanageable debt and is an alternative to bankruptcy.  Debtors are released from most of their debts when they complete all payments and obligations under the agreement.

When preparing your offer, it is important to be realistic about your current situation as well as what you expect to happen in the future.  Consider:

  • what your creditors may accept
  • what you can afford
  • what will happen if your circumstances change.

Debt agreements have:

  • extra protection for debtors not offered by private or informal arrangements
  • eligibility requirements that you must meet before you can proceed
  • the same rate of payment to all creditors.

Debt agreements are not:

  • consolidation loans
  • agreements to borrow or loan money
  • able to have you released from all types of debts - some types of debts will still need to be repaid
  • an appropriate solution for all debtors.

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How is a debt agreement made?

With the assistance of a debt agreement administrator, a debt agreement proposal is prepared and lodged with us using the approved forms.  If approved by the Official Receiver, the debt agreement proposal is sent to the debtor’s creditors for voting upon.

A debt agreement proposal becomes a debt agreement once the voting period is over, creditors have voted, and an accepted result has been recorded on the NPII. For more information about the voting process and voting decisions, please see the Debt agreement process.

Proposing a debt agreement

When making your offer, it is important to be realistic about your current situation as well as what you expect to happen in the future.  Consider:

  • what your creditors may accept
  • what you can afford
  • what will happen if your circumstances change.

You can negotiate to set the terms of your offer - for example, you may offer to pay less than 100 cents per dollar (i.e. less than the amount you actually owe) to all unsecured creditors over a particular time period. After they are given the offer creditors will vote to accept or reject it.

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Who can propose a debt agreement?

Debtors are eligible to lodge a debt agreement proposal if they:

  • are insolvent (unable to pay their debts as and when they fall due)
  • have not been bankrupt, had a debt agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years (this will be verified by the Official Receiver)
  • have unsecured debts, assets (specifically the equity in assets) and after-tax income for the next 12 months all less than the indexed amounts
  • pay the debt agreement lodgement fee specified in fees and charges

When you are considering proposing and entering into a debt agreement there are impacts and important consequences that you (the debtor) need to be aware of. For more information about these impacts, see Consequences.

If the debt agreement proposal is accepted by creditors:

  • the debt agreement commences
  • the debtor is not bankrupt
  • all unsecured creditors are bound by the debt agreement and are paid in proportion to their debts
  • secured creditors may seize and sell any assets which the debtor has offered as security for credit if the debtor is in default
  • unsecured creditors cannot take any action against the debtor or property of the debtor to recover their debts
  • the agreement does not release another person from a debt jointly owed with the debtor and creditors may pursue them for the debt.

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Can a debt agreement be varied or terminated?

If your circumstances change, there is the option to lodge a proposal to vary or terminate the debt agreement.  Also, if you do not comply with the terms, your debt agreement may be automatically terminated by the Official Receiver.  Please go to the section about varying or terminating for more information.

When will a debt agreement end?

A debt agreement ends when you have completed all obligations and payments. At that point you are released from all the debts covered in the debt agreement.  The National Personal Insolvency Index (NPII) will be updated once your administrator notifies the Official Receiver of the completion of all obligations and payments.

A debt agreement can also end when the court orders the debt agreement be terminated or declared void or the debt agreement is terminated by creditors.  For more information about terminating a debt agreement and its consequences, please go to varying or terminating.

Public record of your debt agreement

Information about your debt agreement, including your name, date of birth and address will be recorded on the National Personal Insolvency Index (NPII) for a limited time. For further information about how long information about your debt agreement or debt agreement proposal will remain on the public record, see Recording debt agreement details on the NPII. If you have concerns about your safety due to your personal details being on the NPII, you should read the National Personal Insolvency Index page.

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AFSA provides general information but does not offer legal advice, legal interpretations or opinions.