What is a debt agreement (Part IX agreement)?

A Part IX debt agreement (‘debt agreement’) is an alternative to bankruptcy.

A person who wishes to avoid bankruptcy and who has income, debts and assets that are less than a statutory limit may put forward a debt agreement.

A debt agreement is a formal option to help you deal with unmanageable debt. It is a binding agreement between you and your creditors, where creditors agree to accept a sum of money that you can afford.

You will be released from your debts when you complete all payments and obligations under the agreement.

What are the advantages of a debt agreement over bankruptcy?

A debt agreement enables you to:

  • avoid bankruptcy and the restrictions that come with it
  • consolidate your debts, so that you agree to make manageable payments only to the administrator of the debt agreement, with no further payments required in relation to unsecured debts (for example, credit cards and loans).

How does a debt agreement work?

Under the debt agreement, your repayments are based on your capacity to pay, having regard to your income and all your household expenses.

It may provide for:

  • weekly or monthly payments from your income
  • deferral of payments for an agreed period
  • the sale of an asset to pay creditors
  • a lump sum payment to be divided among creditors.

Who can propose a debt agreement?

You can lodge a debt agreement proposal if you:

  • are insolvent
  • have not been bankrupt, had a debt agreement or appointed a controlling trustee under the Bankruptcy Act 1966 in the last 10 years
  • have unsecured debts, assets and after-tax income for the next 12 months that are all less than set limits.

What is the process involved in entering a debt agreement?

Step 1: read and sign the prescribed information page

You must read and sign the prescribed information page regarding the consequences of bankruptcy, debt agreements and other alternatives.

Step 2: appoint an administrator

If, after considering your options, you decide that a debt agreement is the best choice, you must decide whether to appoint an administrator or to self-administer the debt agreement. The services of an administrator attract a fee.

An administrator will determine if you are insolvent and the extent of your unmanageable debt.

The administrator will also help you prepare a debt agreement proposal based on what you can afford to pay creditors, and will assist with the completion of the correct forms.

Step 3: lodge the proposal with the Australian Financial Security Authority (AFSA)

Complete and lodge the debt agreement proposal with AFSA within 14 days of signing it.

A certificate signed by the administrator must accompany all debt agreement proposals lodged by an administrator. This certificate states that the administrator:

  • has given you the prescribed information about bankruptcy, debt agreements and other options
  • believes you can afford to make the payments promised in your debt agreement proposal
  • believes you have properly disclosed your affairs to creditors.

If you are self-administering, you do not have to supply a certificate but must provide AFSA with a signed copy of the prescribed information when lodging the proposal.

Step 4: AFSA sends the proposal to creditors for assessment and voting

On lodgement of the forms, AFSA conducts a number of checks to ensure that the debt agreement proposal satisfies its eligibility criteria.

If AFSA accepts the proposal for processing, it is recorded on the National Personal Insolvency Index (NPII).

AFRA sends each creditor a completed report, copies of the debt agreement and an explanatory statement, a statement of claim and a voting form.

The voting period is generally five weeks.

Step 5: AFSA checks and counts the votes

At the end of the voting period, AFSA will review the creditors’ votes.

For a debt agreement proposal to be accepted, AFSA must receive ‘yes’ votes from a majority (in dollar value) of the creditors who vote.

What happens if the proposal is accepted by the majority (in dollar value) of the creditors who vote?

The proposal becomes a debt agreement.

AFSA updates the NPII to show you have entered a debt agreement.

What happens if the proposal is rejected by the majority (in dollar value) of creditors who vote, or if no creditors vote?

The voting outcome is recorded on the NPII.

The creditors can commence, or continue with, action to recover their debts.

What happens if you withdraw, or AFSA cancels, the proposal?

AFSA updates the NPII with this result.

Creditors can commence, or continue with, action to recover their debts.

Step 6: if a debt agreement proposal is accepted

If the debt agreement proposal is accepted by creditors, you must comply with the agreement and ensure it is completed by the date listed on the proposal.


Are you or your company facing an uncertain financial future? David Clout is a highly regarded expert in insolvency, an experienced negotiator and strategic thinker. As a registered Liquidator and Bankruptcy Trustee, he is qualified to accept a range of insolvency appointments. Call +61 7 3129 3316 to arrange a consultation.