If you’re feeling weighed down by bills, personal loans, or credit card repayments you just can’t keep up with, you’re not alone.
Many Australians face the stress of mounting debt and the fear of creditors calling. In these moments, it can feel like there’s no way out. But the good news is, there are legal pathways designed to help you get back on track without going through the full consequences of bankruptcy. One of these pathways is a debt agreement (sometimes called a Part 9 or Part IX debt agreement).
Here we will answer the question “what is a debt agreement?”, explain how it works under Australian law, outline the benefits and considerations, and give you the practical steps you can take next.
What Is a Debt Agreement?
A debt agreement, sometimes called a debt 9 agreement, is a legally binding arrangement between you and your creditors. It is governed under Part IX of the Bankruptcy Act 1966 (Cth) and regulated by the Australian Financial Security Authority (AFSA).
Put simply, if you’re struggling to repay your debts, you may propose an agreement through a registered debt agreement administrator. In your proposal, you explain how much you can realistically afford to repay and over what timeframe. Your creditors then vote on whether or not they accept your proposal.
If the majority of creditors (by value of debt) agree, the arrangement becomes legally binding. This means:
- Creditors must stop chasing you for repayments.
- Interest on the included debts stops.
- You make affordable payments to the administrator, who distributes the money fairly among your creditors.
Once you finish your repayments, you are released from most unsecured debts covered in the agreement.
Who is a Debt Agreement For?
A Part 9 debt agreement is designed for individuals, not businesses, who are struggling with unsecured debts such as:
- Credit cards
- Personal loans
- Store cards
- Overdue utility bills
A debt agreement generally suits people who have limited assets or a modest income, and cannot pay off debts in full but still want to avoid bankruptcy.
It does not usually cover secured debts such as mortgages or car loans. If you have secured debts, you need to keep making those repayments separately to avoid losing your asset.
Real-Life Relief: Sarah’s Story
Sarah, from Melbourne, owed $30,000 across several credit cards and personal loans. With no house and minimal savings, she couldn’t keep up with her repayments. Through a debt agreement, she proposed paying back a reduced amount over three years. Her creditors agreed, interest stopped accumulating, and she repaid what she could afford. After three years, she was free from the debts listed in the agreement.
The Debt Agreement Process
So, what does the debt agreement process look like? Here’s how it works step by step:
- Check Eligibility: To qualify for a debt agreement, you must:
- Be insolvent (unable to pay debts when they are due).
- Meet income, debt, and asset thresholds set by AFSA (these limits are indexed annually).
- Not have been bankrupt or entered into a debt agreement in the last 10 years.
- Work with a Registered Administrator: An AFSA-registered administrator helps you put together your proposal, lodges it with AFSA, and manages your payments once the agreement is approved.
- Lodge Your Proposal: You’ll need to disclose all your debts, income, and assets honestly. This ensures creditors can make an informed decision.
- Creditor Vote: Creditors vote to accept or reject your proposal. If the majority (by value of debt) agree, the proposal becomes binding on all creditors.
- Repayments Begin: You’ll make regular payments to your administrator, who then distributes funds to creditors.
- Completion: Once you’ve paid the agreed amount, you’re released from most remaining unsecured debts.
- Credit File Impact: A debt agreement is recorded on your credit file for at least five years and is listed on the National Personal Insolvency Index (NPII). This means future applications for credit, rental housing, or certain jobs may be impacted.
Benefits of a Debt Agreement
For many people, a debt 9 agreement offers a practical lifeline. Some key benefits include:
- Affordable Repayments: You only pay what you can realistically afford.
- Stop Creditor Harassment: Once the agreement is in place, creditors can’t chase you for money or take legal action.
- No More Interest: Interest and fees on your unsecured debts stop accruing.
- Keep Assets: In many cases, you can keep personal belongings, and your car or home if you continue to meet secured loan repayments.
- Fresh Start: Once the agreement ends, you’re free from the unsecured debts listed in it.
Things to Consider Before Entering a Debt Agreement
While a Part 9 debt agreement can be a helpful alternative to bankruptcy, it’s not for everyone. Here are some things you may want to consider:
- It is a formal act of bankruptcy. If you can’t stick to the agreement, creditors may push for full bankruptcy.
- There are setup and administration fees that reduce the amount going directly to creditors.
- Your name will appear on the National Personal Insolvency Index, a public record.
- It may affect your ability to apply for credit, rent a property, or take out a mortgage in the future.
- If your income or assets are above AFSA’s thresholds, you may not be eligible.
That’s why it’s important to seek independent advice from a financial counsellor before committing.
Debt Agreement vs Bankruptcy: What Is The Difference?
A debt agreement is often described as a “lighter” form of insolvency compared to bankruptcy. While both are acts of bankruptcy, a debt agreement is designed to be less severe:
- Bankruptcy usually lasts three years and has heavier restrictions, including possible loss of assets and limits on overseas travel.
- A debt agreement is generally shorter (often three to five years) and allows you to retain more control over your finances.
- Creditors usually get more back under a debt agreement compared to bankruptcy.
Sarah’s Story Continued
Let’s revisit Sarah’s story. Without a debt agreement, Sarah’s creditors could have pursued her in court, adding extra stress, legal fees, and potential garnishing of wages. By entering a debt agreement, she avoided bankruptcy, protected her limited assets, and regained control over her finances.
For someone like Sarah, the debt agreement provided breathing room, reduced stress, and a clear plan to rebuild her financial future
Taking the Next Step
So, what is a debt agreement? It’s a formal, legally binding solution under the Bankruptcy Act that allows Australians who are struggling with unsecured debts to make affordable repayments and gain financial breathing space, without entering full bankruptcy.
If you’re feeling overwhelmed, remember, you’re not alone, and there are options. Always seek free, confidential advice from a registered financial counsellor by calling the National Debt Helpline on 1800 007 007.
How City Finance Helps
At City Finance, we understand the pressure that comes with unmanageable debt. That’s why, alongside our fast money loans, we also believe it’s important to help others learn about responsible lending and long-term financial wellbeing.
A Part 9 debt agreement may not be the right solution for everyone, but it can be a helpful step for people with personal loans or credit cards they can’t repay. If you’re rebuilding your financial standing, it’s also worth exploring how to become a creditworthy borrower again, and for those who have faced past challenges, second chance loans may provide another pathway.
Whatever your situation, we’re here to support you with clear, accessible information and lending solutions that prioritise your long-term financial health.
Need more clarity about your options? Contact City Finance today to explore how we can support you on your journey toward financial stability.