What is a Debt Agreement and Should You Consider One?

What is a Debt Agreement and Should You Consider One?

Struggling with unmanageable debt in Australia? A debt agreement could offer relief — but it’s not a decision to take lightly. Here’s what you need to know before committing to one.

What Is a Debt Agreement?

A debt agreement is a legally binding deal between you and your creditors to repay a percentage of your debts over time. It’s managed under Part IX of the Bankruptcy Act and is often seen as a “bankruptcy alternative.”

How It Works

  • You work with a registered debt agreement administrator
  • A proposal is sent to your creditors
  • If the majority agree, it becomes binding for all creditors
  • You make regular payments (often over 3–5 years)

Who Qualifies?

To enter a debt agreement in 2025, you must:

  • Be insolvent (unable to pay debts on time)
  • Owe less than $125,000 in unsecured debt
  • Have assets worth less than $250,000
  • Earn under $100,000 annually (approx. thresholds)

Pros

  • Stops debt collectors and legal action
  • Combines multiple debts into one manageable payment
  • Usually no interest charged during the agreement

Cons

  • Stays on your credit file for 5 years (or longer)
  • Affects ability to get loans or credit
  • Fees apply (setup and admin)
  • Can still be rejected by creditors

Alternatives to Consider

  • Debt consolidation loans
  • Informal arrangements with creditors
  • Financial counselling services (e.g. National Debt Helpline)

Should You Do It?
Only after exploring all other options. Speak to a free, independent financial counsellor before proceeding.

Disclaimer: This article provides general information only. For legal or financial advice, consult a registered adviser.

Australian woman reviewing debt agreement options

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