What is a debt agreement?

A debt agreement is one of two agreement options available. A debt agreement, also known as a Part IX (9), is a legally binding agreement between you and your creditors.

A debt agreement can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.

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How debt agreements work

  • You negotiate to pay a percentage of your combined debt that you can afford over a period of time.
  • You make repayments to your debt agreement administrator, rather than individual payments to your creditors.
  • After you complete the payments and the agreement ends, your creditors can't recover the rest of the money you owe.
  • You need to talk to a registered debt agreement administrator  if you want to enter into a debt agreement, they will submit a proposal to us on your behalf.

A debt agreement may be a suitable alternative to bankruptcy

  • It can benefit your creditors as they may receive more money than if you were to become bankrupt.
  • It can provide relief if you're unable to manage your debts, but there are some consequences which may affect you.
  • Be aware that there are limits to the amount of debt and income you can have to be eligible.

Debt agreements are not:

  • consolidation loans or agreements to borrow money
  • able to release you from all types of debts—some debts you will still need to pay.

For more information see: What debts does a debt agreement cover?

Before entering into a debt agreement

Speak to a financial counsellor

Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt. 

To speak with a free financial counsellor contact the National Debt Helpline on 1800 007 007.

For more information on financial counsellors and other support services see Where to find help.

Know your options

A debt agreement is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include temporary debt protection for 21 days, personal insolvency agreements and bankruptcy. There are also other options available (such as coming to an agreement with your creditors).

For more information see: What are the options?

Understand the consequences

Entering a debt agreement may have a serious impact on you. It may affect your ability to get credit and will appear on a public register for a limited time.

For more information see: What are the consequences of a debt agreement?

Case study: Lin

Applying for a debt agreement

Lin is a 22 year old café manager in Melbourne. She earns about $50,000 a year. She’s single and rents an apartment in the city with a flatmate.

Lin owed a range of creditors about $35,000 including personal loans and credit cards. She owned a car and some household items, but she did not really have any assets she could sell to pay back her debts.

Lin had to pay for some major repairs to her car, so she missed some of her repayments. Her debt started to spiral out of control.

Lin spent a lot of time researching her options and spoke to a free financial counsellor. Lin wanted to pay back as much of her debts as possible. She decided that a debt agreement was the best option for her.

First, Lin confirmed she was eligible to apply:

  • She was unable to pay her debts when they were due
  • Her debts and assets were below the set amount*
  • Her estimated after-tax income for the next 12 months was below the set amount*
  • She had not been bankrupt, had a debt agreement or personal insolvency agreement in the last 10 years

She then met with a debt agreement administrator. They set out a plan to offer Lin’s creditors 65% of what she owed over a three year period. The administrator explained the fees to lodge the debt agreement proposal with AFSA, and the fees for the administrator to manage the agreement.

After making sure Lin could afford the proposal, the administrator lodged the proposal with AFSA and it was accepted. It was then sent to Lin’s creditors to vote. The majority of creditors accepted the proposal, and Lin’s debt agreement commenced.

The administrator is managing Lin’s debt agreement. Lin pays the administrator the agreed amount each month. The administrator takes out their fees, then pays Lin’s creditors. Lin doesn’t have to pay anyone else.

If Lin’s circumstances change in the future, her administrator may be able to help vary or terminate the debt agreement. Lin knows she must contact her debt agreement administrator as soon as her circumstances change.

* These amounts change twice a year. You can find the latest amounts at Indexed Amounts.

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.

Debt agreement fees

We charge a fee for lodging a debt agreement proposal. 

Normally, there are also other fees involved in proposing and managing a debt agreement. 

The fees between administrators vary. Ensure that you discuss with them what their fees cover before you decide to go ahead. The total set up fee (which may include the AFSA lodgement fee) and any ongoing fees must be included in your debt agreement proposal.

How long is the debt agreement for?

A debt agreement can go for up to three years. However, if you own your home, you may be able to propose a debt agreement for up to five years. 

In some situations (such as substantial and unforeseen changes) you may be able to extend this to up to five years.