…that’s Part 9 of the Bankruptcy Act…

Debt agreements are specifically designed to help low income earners to avoid becoming bankrupt.

If you can’t pay your unsecured debts and want to avoid bankruptcy — which would threaten assets like your home — you can propose a Debt Agreement to your creditors. If they agree, they are accepting an amount you can afford to pay to settle your debts.

If you then pay the agreed amount in the specified time, they can’t try to recover the rest of the money you owed.

Debt Agreements

A Debt Agreement is a very serious step with legal implications.

  • Proposing a debt agreement is an act of bankruptcy, so your creditors could reject your proposal and use it to apply to the court to make you bankrupt – triggering the very thing you were trying to avoid.
  • You will be permanently listed on the National Personal Insolvency Index.
  • The details may appear on your credit report for up to 7 years.
  • You must tell new creditors about the debt agreement when you take on new credit over a certain amount.
  • If you have a business trading under another name, you must disclose the debt agreement to anyone who deals with the business.
  • It may prevent you from practicing some professions or being employed in positions of trust.


Also, be aware that some debts can’t be avoided by a debt agreement, including:

  • secured debts like home mortgages
  • debt in joint names with a partner
  • debts incurred by fraud
  • child support
  • fines, penalties or other court-ordered payments
  • student HECS, HELP, Student Financial Supplement Scheme debts


Legal Advice

If you’re in trouble financially, a debt agreement could keep you from bankruptcy and save your home, but only consider entering into a debt agreement after you get independent legal advice.
Free legal advice is available if you are not able to afford a private solicitor. For more information, go to moneysmart.gov.au/managing-your-money/managing-debts/free-legal-advice.

Before you do though, have a look at Take control and get ahead. You may be able to master your financial difficulties without resorting to a Debt Agreement.

If you decide to go ahead with a debt agreement, check the administrator is on Australian Financial Security Authority’s list of Registered debt agreement administrators. Make sure you check their upfront and ongoing fees which can add to your total debt.

Beware the equity strippers

A small but dangerous minority of finance businesses has been found to churn clients from one loan to another, often exaggerating the threat of repossession.

Each time, large fees (sometimes tens of thousands of dollars) reduce the owners’ equity in the home, leaving them worse off and ultimately more likely to lose their home.


What are your thoughts?

Are your debts out of control? Are you considering a debt agreement? Is there anything else you’d like to know about managing your debts?

Join the conversation — leave a comment below and let us know what you’re thoughts are.

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