Debt Agreements vs Bankruptcy

Debt Agreements are a flexible and lower cost alternative to Bankruptcy. Both the Part 9 Debt Agreement and Bankruptcy are regulated by the Bankruptcy Act and administered by ITSA and are designed for people who are unable to manage their debts and are therefore insolvent.

If you are insolvent but do not wish to declare bankruptcy, you will find that a debt agreement is both cheaper and less restrictive than the bankruptcy solution.

Under a Debt agreement you will attempt to reach an agreement with creditors to settle a debt. You will propose a payment plan that is affordable to you and may involve the creditors receiving less than the amount owed to them in full settlement of the debt. You agree to pay off some or most of the debt voluntarily in line with what is affordable to you.

With bankruptcy, if you have no money and no assets to be sold, you can completely walk away from all qualifying debts. The process is more serious and is not to be entered into lightly. The bankruptcy generally lasts about 3 years from the date a statement of affairs is followed. Sometimes it can go as long as 5 to 8 years if there is a lack of cooperation or documents are not provided.

When it comes to bankruptcy, some of your assets may be repossessed by the bankruptcy trustee and sold in order to repay creditors. While bankruptcy can be voluntary, it is sometimes a result of action taken by your creditors.

A debt agreement doesn’t take away some of the freedoms that bankruptcy does. Some of the freedoms that are affected include your asset ownership, employment prospects, being able to rent property, and being able to travel outside of the country.


Consequences of Entering into a Debt Agreement

  • You avoid bankruptcy however a debt agreement is an indication of your insolvency and will be recorded as such on the (National Personal Insolvency Index) NPII;
  • Your Credit Report will reflect this for 5 years making it difficult to borrow;
  • Your repayments will be affordable and interest charges frozen;
  • Creditors are obliged to leave you alone and accept agreed payments providing you live up to your side of the agreement;
  • Become debt free at end of Debt Agreement period;


Role of ITSA with respect to Debt Agreements

ITSA is the Insolvency Trustee of Australia. ITSA regulates is the government agency responsible for the administration and regulation of the personal insolvency system in Australia including Debt Agreements and Bankruptcy.

The Insolvency and Trustee Service Australia (ITSA) also maintains the National Personal Insolvency Index (NPII), a database containing information on past and present insolvencies, debt agreements and bankruptcies.

The Insolvency and Trustee Service Australia (ITSA), are responsible for:

  • source of information about debt and insolvency in Australia;
  • maintaining registry services for the lodgement of forms relating to personal insolvency;
  • regulating insolvency practitioners and making sure that they operate within legislative provisions;
  • acting as a trustee for the administration of insolvent estates and other types of trustee administrations, including Proceeds of Crime matters;



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