Debt Agreements Australia 2026: Rules, Benefits & Risks

A debt agreement is a formal, legally binding arrangement between you and your unsecured creditors. It is governed by Part IX of the Bankruptcy Act 1966 and is designed for individuals who are unable to pay their debts in full but want to avoid bankruptcy.

Under a debt agreement, you propose to pay a portion of your debts over an agreed period—typically three to five years. If the majority of your creditors (by dollar value) accept your proposal, the agreement becomes binding on all included creditors. Once in place, you make regular payments to a debt agreement administrator, who then distributes the funds to your creditors.

Key Features

• Eligibility: Debt agreements are only available to individuals whose unsecured debts, assets, and after-tax income fall below certain thresholds, which are reviewed and updated regularly.
• Protection: Creditors included in the agreement cannot pursue you for more than the agreed repayments, and most legal action is paused while the agreement is in force.
• Credit Impact: Entering a debt agreement is a form of insolvency. It will appear on your credit file and the National Personal Insolvency Index (NPII), affecting your ability to access credit for several years.

Recent changes in 2026 have adjusted the eligibility criteria and administration of debt agreements in Australia. The main updates include:

• Eligibility Thresholds: The limits for unsecured debts, assets, and after-tax income have been increased to reflect inflation and cost-of-living changes. These thresholds are set by the Australian Financial Security Authority (AFSA) and are reviewed annually.
• Digital Applications: The process for applying for a debt agreement has been streamlined, with more options for online submission and verification, making it easier and faster to apply.
• Fee Transparency: New rules require debt agreement administrators to provide clearer disclosure of their fees, helping applicants better understand the costs involved before committing.

These changes aim to make debt agreements more accessible and transparent for Australians in financial distress.

A debt agreement may be suitable if you:

• Are unable to pay your unsecured debts in full but want to avoid bankruptcy
• Have a regular income and can commit to making agreed repayments
• Owe less than the current unsecured debt and asset thresholds
• Need formal protection from creditor action or harassment

Important Considerations

• Debt agreements do not cover secured debts, such as mortgages or car loans, or debts incurred through fraud.
• Your name will remain on the NPII for at least five years, and your credit file will reflect the agreement for a similar period.
• If you are unable to meet the repayment terms, the agreement may be terminated and creditors could pursue you for the full amount owed.

1. Assessment: You (or a debt agreement administrator) review your financial situation to determine eligibility.
2. Proposal: A formal proposal is prepared, outlining how much you can afford to repay and over what period.
3. Creditor Vote: Creditors vote on whether to accept your proposal. If a majority (by dollar value) agree, the agreement becomes binding.
4. Repayments: You make regular payments to the administrator, who distributes funds to creditors.
5. Completion: Once all payments are made, any remaining eligible debts included in the agreement are considered settled.

• Legal Protection: Creditors included in the agreement cannot take further legal action or contact you for additional payments.
• Structured Repayments: Payments are based on what you can afford, making it easier to budget and plan.
• Avoids Bankruptcy: A debt agreement is less severe than bankruptcy and may have fewer long-term consequences.
• Peace of Mind: Formalising your debts can reduce stress and stop creditor calls.

While a debt agreement can provide relief, it’s important to be aware of the potential downsides:

• Credit Impact: Your ability to access new credit will be restricted for several years.
• Fees: Administrators charge setup and ongoing fees, which can be significant. Recent changes have improved fee transparency, but costs still apply.
• Asset Sales: In some cases, you may need to sell assets to meet your repayment obligations.
• Termination Risk: If you default on repayments, the agreement may be cancelled and creditors can pursue you for the full amount owed.

A debt agreement is not the only option for managing debt. Depending on your circumstances, you might consider:

• Debt Consolidation Loans: Combining multiple debts into a single loan with one repayment. This may be suitable if you have a good credit history and stable income.
• Informal Arrangements: Negotiating directly with creditors for reduced payments or extended terms, without entering a formal agreement.
• Financial Counselling: Seeking advice from a qualified financial counsellor can help you explore all available options and make an informed decision. Free and confidential services are available in Australia. See more at finance.

What debts can be included in a debt agreement?

Debt agreements cover unsecured debts such as credit cards, personal loans, and utility bills. Secured debts like mortgages and car loans are not included.

How long does a debt agreement last?

Most debt agreements run for three to five years, but the exact term depends on your proposal and what creditors accept.

Will a debt agreement affect my credit rating?

Yes. A debt agreement is recorded on your credit file and the National Personal Insolvency Index for at least five years, impacting your ability to obtain new credit during that time.

What happens if I can’t make the agreed repayments?

If you default on your debt agreement, it may be terminated and creditors can pursue you for the full amount owed, including any interest or fees that would have applied.

Debt agreements remain a viable option for Australians facing unmanageable unsecured debts in 2026. With updated rules and increased transparency, they can provide a structured path to financial recovery for those who are eligible and committed to meeting the terms. However, it’s important to weigh the benefits against the risks and consider seeking professional advice before making a decision.