Debt relief

If you lose your job, how will you pay your bills? CHOICE outlines your options.
Learn more

03.Last resort

Debt agreement

This is a binding agreement between you and your creditors where the creditors agree to accept a sum of money you can afford to pay. In order to qualify:

  • You need to be insolvent, which means you’re unable to pay your debts at their due date.
  • Your after tax-income can’t exceed $70,898.10.
  • You can’t owe more than $94,530.80 in unsecured debts and you own only up to the same amount in assets.
  • The limits are updated each year on March 20 and September 20, the limits above are current for October 2011 – more information and up-to-date limits can be found on the website of Insolvency and Trustee Services Australia (ITSA).

Under a debt agreement, your debts are frozen, no more interest applies and you repay a set amount per week over three to five years.

DAs are usually negotiated and administered by debt agreement administrators, who broker a deal with your lenders on your behalf. Anna Mandoki, a financial counsellor with Melbourne’s Inner South Community Health Service warns, however, that “financial counsellors regularly see people who have defaulted on their debt agreement because it was based on an unrealistic budget and was unaffordable in the first place”. While debt agreement administrators are required to help you prepare a realistic budget it is crucial you go through it in every detail to make sure it adequately reflects all your outgoings.

A debt agreement needs to be lodged with the government regulator, ITSA, and a majority of your unsecured creditors need to agree to it to make it binding. You usually pay back between 25% and 75% of your debt, plus a set-up fee of about $2000 and an administration fee, such as 20% of the total amount, which you pay to the debt agreement administrator (see From a Debt Administrator’s Case File, below). There is also a government charge of 3.5% .

As DAs apply to your unsecured debts only, such as credit cards and personal loans, assets such as your house or car can be repossessed if you default on their repayments. If you default on your repayment for the DA, your creditors can obtain an order to force you into bankruptcy.


The main advantage of bankruptcy over a debt agreement is relief from all payments – but this comes at a high cost. You’re usually bankrupt for three years, during which time you’re allowed only very limited assets – the rest are sold by your trustee to repay creditors. Anything you acquire during this period, such as an inheritance, will also be lost. You’ll repay 50% of your after-tax income above a threshold, currently about $41,250 (more if you have dependants). You won’t be able to hold jobs that involve handling money or require a licence, and you need agreement from your trustee to travel overseas. For more information, go to

Case study: From a debt administrator’s case file

Each month, debt administrator Fox Symes receives about 5000 calls from people in debt, about 300 of whom get a debt agreement. One of them is Tara (not her real name), a beauty therapist with a husband and two children.

Tara has three credit cards with a total debt of about $70,000. She also has one car loan (on a BMW) and another joint car loan with her spouse, on a Renault. These loans are secured and not covered by the debt agreement (see Debt Agreements, above). Tara will pay about $49,000 in total, which includes roughly $36,500 to her creditors, a $1650 government charge and $10,580 set-up and administration fees to Fox Symes.

The agreement goes over three years and states she’ll pay back $265 per week in the first year, then increase the payments to $320 per week once one of the car loans will be finalised.

The weekly payments need to be covered by the money left over after Tara and her spouse pay for their weekly expenses, which include $320 for rent, $235 for food and money for car loan repayments. They could have trouble finding money for extras such as school excursions or takeaway meals.

The couple will have to budget in order to keep to the agreement, if Tara defaults on the repayments she could be forced into bankruptcy.


Sign up to our free

Receive FREE email updates of our latest tests, consumer news and CHOICE marketing promotions.

Your say - Choice voice

Make a Comment

Members – Sign in on the top right to contribute to comments