Most Australians suffer through financial problems during their lifetime, and this is mainly regarded as a natural fluctuation in our finances. But what if you’re unable to work through these problems yourself, but at the same time, you don’t want to declare bankruptcy?


Debt consolidation loans are a popular solution that relieves folks of financial pressure by consolidating all their current debts into one easy to manage loan that’s payable monthly. Likewise, debt agreements are another solution available to individuals in financial distress, and this will be the focus of today’s article.


What is a debt agreement?

A debt agreement is basically a legal contract between you and your creditors which constitutes Part IX of the Bankruptcy Act 1966. Under this agreement, your creditors allow you to repay a sum of money that you can afford, over an agreed time frame, to settle your debts.


It is necessary to note, however, that entering a debt agreement is an ‘act of bankruptcy’ and has long-term financial repercussions which may have an effect on your ability to receive credit down the road. Subsequently, it’s strongly encouraged that individuals seek independent financial counselling before making this decision to make sure this is the best choice for their financial situation and they clearly understand the repercussions of such agreements.


Prior to entering a debt agreement

There are a number of things one should think about prior to entering into a debt agreement. Talking to your financial institutions about your financial situation is always the first step you should take to try to clear up your debts outside of a debt agreement. Have you spoken with your creditors and asked them for additional time to repay your debt? Have you already tried to work out a repayment plan or a smaller payment to repay your debt?


What types of debts are included in debt agreements?

Debt agreements are designed to help low income earners who are not able to pay unsecured debts. Not all types of debt are covered in debt agreements, such as the following:

  •  Secured debt – for example mortgages where the property can be sold to recoup money
  •  Joint debt – if you have a joint debt with a partner, financial institutions can request that your partner repays the full amount if you’re unable to
  •  Foreign debt
  •  Other debts – for instance debts incurred by fraud, student HECS or HELP debts, court fines, and child support


Are you entitled to enter a debt agreement?

To determine if you are qualified, simply visit the Australian Financial Security Authority’s (AFSA) website (


If you decide that a debt agreement is the best approach for you, a debt agreement administrator will help you with your debt agreement proposals, based on what you can afford, and send this proposal to each of your creditors. If your lenders accept the terms of your agreement, then your debt agreement will start, for instance, paying 85% of your debts to lenders over a 3-year time period.


Disadvantages of debt agreements

As explained earlier, debt agreements are an ‘act of bankruptcy’ and consequently there are severe repercussions one must take into consideration.

  •  If your creditors turn down your debt agreement proposal, they can make an application to the courts for involuntary bankruptcy
  •  Your name will appear on the National Personal Insolvency Index (NPII) for 5 years from the date of your agreement, or 2 years after the end date, whichever is later
  •  Your debt agreement will be mentioned on your credit report for up to five years, or longer in some circumstances
  •  You are legally required to inform a new financial institution of your debt agreement when receiving a loan over $5,703.
  •  If you own a firm trading under another name, you are legally obliged to reveal your debt agreement to any person who deals with your enterprise.
  •  If your job belongs to a regulated profession or a position of trust, it may have an effect on your employment.


Decide on your debt agreement administrator mindfully.

Debt agreement administrators play an important role in the results of your debt agreement, so always select an administrator that is registered with AFSA’s list of registered debt agreement administrators. Fees also fluctuate widely between administrators, so always check the payment terms prior to making any decisions.


If you’re still unclear if a debt agreement is the right choice for you, get in contact with Bankruptcy Experts Rockingham on 1300 795 575 who can give you the right advice, the first time. For additional information, visit