Home Loan Experts

Is A Debt Agreement A Good Or A Bad Thing?

Blog author

Otto Dargan


Takes only 4 minutes


19 May, 2015


Updated: 09 Jul, 2024

Around 10,705 Australians entered into a debt agreement in past financial year, up from 9,652 in 2012-13.

That’s according to a recent annual report from the Australian Financial Security Authority (AFSA), which found that debt agreements now make up around 36.27 per cent of total personal insolvency.

For Australians unable to pay their debts, including credit cards, tax debt or personal loans from a bank or lender, debt agreements are seen as an alternative to declaring bankruptcy.

It’s important to keep in mind though that debt agreements are formal agreements that actually fall under Part IX of the Bankruptcy Act 1996.

Yes, there are advantages in choosing this option over bankruptcy but Part IX agreements can also have a number of long term effects and shouldn’t be entered into lightly.

The pros of a debt agreement

  • You have some control: With the assistance of a debt agreement administrator like Debt Fix, you can put forward a debt agreement proposal for an amount that you can afford to pay over a set period of time.
  • Extra protection: Unlike bankruptcy and private or informal agreements, your assets, such as your property and car, can’t be seized and your income won’t be garnished, although to be eligible for a debt agreement you cannot earn more than $80,480.40 a year.
  • You can continue to work: You can keep working and earning an income. Just keep to a budget so you can meet your debt agreement!
  • You only have to pay the agreed amount: Creditors can’t recover any more than what is agreed upon once the Part IX agreement is accepted by the majority of your creditors.
  • The interest on your loan/credit is frozen: This can help you pay your debts off a lot faster.
  • Reduce stress: You get a second chance at being financially stable and can start rebuilding your life.

What are the drawbacks of a debt agreement?

  • It’s not a debt consolidation loan: It’s not the same as taking out another loan and rolling all of your debts into one. That means you’ll have to keep paying your mortgage while you pay your debt agreement.
  • You’ll a have permanent record: Your name and details will be permanently listed on the National Personal Insolvency Index (NPII), a public record on AFSA. This may stop you from getting hired for certain professions and positions of trust such as those in the finance industry.
  • You may not be able to access finance: A Part 9 agreement will be listed on your credit file and will remain there for up to 7 years from the date the agreement was proposed or at such time that the agreement is paid off. Even after completing your debt agreement, you may not be be able to access finance within that 7 year period unless you go with a specialist lender or credit provider.
  • You must tell new creditors: When you take on new debt or purchase goods and services, you’re required to tell the new creditor. This only applies to amounts over $5,409.
  • Your business: If you have a business and are trading under another name, your debt agreement must be disclosed to anyone who deals with your business.
  • Possible bankruptcy: To be clear, a debt agreement is an act of bankruptcy. If you propose a debt agreement with your creditors that is not accepted, they can use the proposal to apply to the court to make you bankrupt.

Debt agreements can’t be used for all types of debt

Another big problem with debt agreements is that it doesn’t release you from all types of debts:

  • Secured debt: This includes car loans and mortgages. Normally, the sale of these assets by the creditor/lender is enough to cover any outstanding debt you have but if it isn’t enough, the money owing could form part of a debt agreement.
  • Joint debt: If you have a debt in joint names and your partner is unable to repay their share of the debt, the creditor can ask you to repay the outstanding amount. In this situation, the creditor can receive money as part of the debt agreement but still has the right to recover the balance of the debt from any other borrowers.
  • Overseas debts: Overseas creditors can be part of the debt agreement but you may be liable for paying off the outstanding balance depending on the laws in the country in which you signed the contract.
  • Other debts: Debts related to fraud, child support, fines, penalties or other court-ordered payments, and student HECS/HELP will be need to be paid in full even after the the debt agreement ends.

How can I avoid a debt agreement?

Seeking out a debt agreement administrator should be seen as a last resort if you cannot pay your debts.

Before heading down that path, you’re often better off trying to resolve it with the creditors first by:

  • Asking them to give you more time to pay the outstanding debt.
  • Negotiating a payment plan.
  • Asking whether they will accept a smaller amount.

You can either contact the creditor directly or get free help from a community legal centre or a financial counsellor who can negotiate on your behalf as well as provide you with budgeting advice.

Tips for choosing a debt agreement administrator

  • Ensure the administrator is registered with AFSA‘s list of registered debt agreement administrators.
  • Ensure you’re not being taken for a ride with administrator fees. This AFSA page can help.

For more information on debt agreements, including eligibility requirements and how to end an agreement, please check out the Debt Agreement (Part IX) page.

Can I qualify for a home loan under a Part IX agreement?

As mentioned previously, you won’t be able to qualify for a home loan when you’re in a debt agreement but you may qualify once your agreement comes to an end.

Check out the Debt Agreement Home Loan page for specific eligibility requirements.

Alternatively, call us on 1300 889 743 or complete our free assessment form to find out how one of our specialist mortgage brokers can help you get approved.

Need help with financial difficulty?

If you’re currently in financial crisis, there are many free services out there including Lifeline’s 24-hour crisis support service and the Salvation Army.

They can help you deal with aggressive creditors and work with you to come up with a plan to meet your financial commitments.