If you are unable to get your debts under control, it might be time to think about taking action. Two common solutions are signing a debt agreement or filing for bankruptcy.

Bankruptcy is a process where a bankruptcy trustee is appointed to administer your affairs to provide a fair distribution of your assets to the creditors.

A Part IX (9) Debt Agreement is a legally binding agreement between you and your creditors arranged by a third-party. Debt agreements involve you paying a percentage of your combined debt to your creditors through this third party (debt administrator). Debt agreements usually last for between three to five years.

Part X (10) Debt Agreement, referred to as a personal insolvency agreement, is a legally binding agreement between you and your creditors, administered by a trustee. The trustee takes control of your property and makes an offer to your creditors to pay all or part of your debt by instalments or a lump sum. The length of this agreement type differs depending on the individual arrangement, but it usually ends once the final payment is made.

Before you decide on bankruptcy as your last resort, here are some important facts you need to know about debt agreements.







The requirements to be eligible for bankruptcy are rather trivial and easy to meet. You should simply be unable to pay your debts when they are due and

You should be present in Australia or have a residential or business connection to Australia.

Strict requirements to be eligible for debt agreement, which do not exist for bankruptcy.

Such requirements include but are not limited to:

·         Are unable to pay your dents when they are due

·         You have not been bankrupt, had not have personal insolvency or a debt agreement in the last 10 years

·         You have unsecured debts and assets less than $114,478.00 (s185C(4)(b), (c) & (5) Bankruptcy Act 1966 (Cth)) 

·         You estimate your after-tax income for the next 12 months to be less than $85.858.50 (s185C(4)(d) & (5) Bankruptcy Act 1966 (Cth))

Requirements include but are not limited to:

·         Are unable to pay your dents when they are due

·         You have residential or business connection to Australia

·         You have not proposed another personal insolvency agreement in the previous six months.


You must request permission from your trustee to travel overseas

No restrictions

No restrictions

Incurring further debt

Must disclose insolvency if incurring debt or obtaining goods and services in excess of $5,778 (s269(1)(a), (aa), (ab), (ac), (ad) and s304A(1)(j) Bankruptcy Act 1966 (Cth))

Must disclose the debt agreement if incurring debt or obtaining goods and services in excess of $5,778 (s269(1)(a), (aa), (ab), (ac), (ad) and s304A(1)(j) Bankruptcy Act 1966 (Cth))

No restrictions

National Personal Insolvency Index (NPII)

Your name will appear on this index forever.

Your name will appear on the index for a limited period of time

Your name will appear on this index forever.

Earning Capacity

You cannot earn over (s139K Bankruptcy Act 1966 (Cth)):

•No dependents: (net of tax) $57,239.00

•1 dependent: $67,542.02

•2 dependents: $72,693.53

•Etc depending on number of dependents


Any money earned over this amount will be confiscated by your trustee and distributed to your creditors.

No restrictions. However, you need to be earning enough to cover your Debt Agreement repayments. Often this means people who have no income cannot enter into a Debt Agreement.

You would be required to contribute part of your income if the agreement includes terms requiring you to do so. If applicable, you would contribute the same amount from your income as you would is you were bankrupt.

Operating a Business

There are several restrictions, depending on the industry. While bankrupt, you cannot be a director of a company or be involved in its management.

You may be able to operate a business

You are able to operate business if agreement allows

Owning Property

You cannot own property while you are bankrupt.


Any property or share in a property you own will be sold by your trustee. The proceeds from the sale will go to your creditors.

No restrictions

Only property that is included in the Agreement is affected. Property that is excluded from the agreement is unavailable to creditors.

Owning a car

There is a set threshold ($7,900 s116(2)(ca) Bankruptcy Act 1966 (Cth)) on the value of the car you drive.


If your vehicle exceeds this amount it will be sold by your trustee

No restrictions

You’re not able to deal with your property (e.g. house or car) without the consent of your controlling trustee

Keeping Tools

A bankrupt may keep tools used to earn an income up to $3,750 (s116(2)(c)(i) Bankruptcy Act 1966 (Cth)) 

No restrictions


Ability to be a director of, or otherwise manage, a corporation



Not until terms of agreement fully complied with

Ability to retain assets

No, unless it is exempt property (for example, household furniture, tools of trade up to a certain value).

Yes, unless terms of the agreement provide otherwise.

Yes, subject to the terms of the agreement

Statutory filing fee


Debt agreement proposal lodgment fee $200

Document processing fee (payable when controlling trustee authority is lodged with AFSA) $240

Can payments made to creditors prior to the agreement/bankruptcy be recovered

Yes, subject to certain statutory conditions being met.


Not unless the agreement specifies that the antecedent transaction provisions of the Bankruptcy Act apply to the debtor.


CONCLUSION: Which one to choose?

As you can see, there are important factors to consider. Any option you choose should allow you to maintain a reasonable standard of living while solving your debt problems. Whether debt agreement is a suitable choice for you or not depends on your own circumstances. If unsuitable, a debt agreement could just delay or worsen your financial hardship. Bankruptcy, on the other hand, can give you immediate relief from debts to start afresh, so you need to make sure that the additional cost and time of a debt agreement is worthwhile and affordable. Remember that the financial decisions of this character should be thoroughly thought through.