Debt Options, Thresholds and 2026 Rules
Debt help options in Australia: from hardship requests to debt agreements and bankruptcy
The full ladder of debt options in Australia in 2026, from free hardship requests and financial counselling to Part IX debt agreements, Part X agreements and bankruptcy.
If you are struggling with debt in Australia, work through the options in order of seriousness: first ask each lender for a hardship variation under section 72 of the National Credit Code and call a free financial counsellor on the National Debt Helpline (1800 007 007); then consider an informal payment plan or settlement; and only after that look at the three formal options under the Bankruptcy Act 1966 — a debt agreement (Part IX), a personal insolvency agreement (Part X) or bankruptcy. The formal options can release you from debts you will never be able to repay, but they are recorded on the National Personal Insolvency Index (bankruptcy and Part X with no removal date, debt agreements for at least 5 years) and stay on your credit report for years, so they should be chosen deliberately, not because an advertisement made them sound easy.
This overview links to every guide in this section. It is general information, not legal or financial advice.
The debt option ladder
| Step | What it is | Who runs it | Formal record? |
|---|---|---|---|
| 1. Hardship variation | Lender changes your repayments for a period under National Credit Code s 72 | Each lender | Hardship information on credit report for 1 year |
| 2. Financial counselling | Free, independent help with budgets, negotiations and options | Community financial counsellors | None |
| 3. Informal payment plan or settlement | Agreement with each creditor to pay over time or accept a lump sum | You or a counsellor | None, unless accounts have already defaulted |
| 4. Debt agreement (Part IX) | Binding agreement with all unsecured creditors, normally up to 3 years | Registered debt agreement administrator | NPII (at least 5 years) and credit report |
| 5. Personal insolvency agreement (Part X) | Formal deal with creditors, no dollar limits | Controlling trustee | NPII (permanent) and credit report |
| 6. Bankruptcy | Trustee takes control of divisible assets; most unsecured debts released at discharge | Official Trustee (AFSA) or a registered trustee | NPII (permanent) and credit report |
Steps 1 to 3 cost nothing and leave no insolvency record. Steps 4 to 6 are all "acts of bankruptcy" or bankruptcy itself, and each one is listed on the National Personal Insolvency Index (NPII), the public register kept by the Australian Financial Security Authority (AFSA).
Step 1: hardship requests
Most consumer credit in Australia — personal loans, car loans, credit cards, home loans and, since 10 June 2025, buy now pay later contracts — is regulated by the National Credit Code. Under section 72 you can tell the lender, orally or in writing, that you cannot meet your obligations. The lender must respond within set timeframes, generally 21 days, and if it refuses it must give reasons and tell you about the Australian Financial Complaints Authority (AFCA).
A hardship variation suits a temporary problem: reduced hours, illness, a relationship breakdown or a natural disaster. It does not reduce what you owe; it changes when and how you pay. Energy retailers, water businesses, telcos and the ATO have their own hardship or payment-plan processes. See the hardship variation worked example.
Step 2 and 3: free counselling and informal arrangements
Financial counsellors are free, independent and confidential. They can check whether debts are legally owed, whether a lender breached responsible lending rules, whether any debt is old enough to be statute-barred, and whether a creditor might waive a debt on hardship grounds. They also negotiate payment plans and settlements. The National Debt Helpline (ndh.org.au) connects you with a counsellor in your state or territory.
An informal arrangement does not bind creditors who do not agree, but it creates no insolvency record. Read negotiating a payment plan or settlement.
Step 4: debt agreements (Part IX)
A debt agreement is a legally binding agreement between you and your unsecured creditors, proposed through AFSA and usually managed by a registered debt agreement administrator. Creditors vote; if a majority by value of those who vote accepts, it binds all of them. You pay the agreed amount, creditors cannot chase you for the original debts or add interest, and when you finish the debts covered are released.
You must be insolvent and under three limits that AFSA indexes twice a year. For the period from 20 September 2026 the unsecured debt limit is $155,773.80 and the divisible property limit is $311,547.60, with an after-tax income limit of three-quarters of the debt limit (AFSA publishes the dollar figure). Since the 2018 reforms (in force from 27 June 2019) an agreement can generally run for no more than 3 years, or up to 5 years if you own or are buying your home. Details: debt agreement eligibility and thresholds for 2026.
Step 5: personal insolvency agreements (Part X)
A personal insolvency agreement has no debt, asset or income limits. A controlling trustee (a registered trustee, a solicitor or the Official Trustee) takes control of your property, investigates your affairs and calls a meeting of creditors, who must pass a special resolution to accept. It suits people above the debt agreement limits who can offer creditors more than they would receive in a bankruptcy. Read personal insolvency agreements explained.
Step 6: bankruptcy
You can apply for bankruptcy yourself through AFSA (a debtor's petition), or a creditor owed at least $10,000 can ask the Federal Court or the Federal Circuit and Family Court to make you bankrupt (a creditor's petition). Bankruptcy normally ends 3 years and 1 day after your statement of affairs is filed. During that time you may have to pay income contributions, you need your trustee's permission to travel overseas, you must disclose your bankruptcy before obtaining credit above an indexed amount, and some occupations and director roles are affected.
- How bankruptcy works
- Income contributions and 2026 thresholds
- What you keep: protected assets
- Reform proposals and their status in 2026
How to choose
| If your situation is… | Usually start with… |
|---|---|
| A short-term income drop, debts otherwise manageable | Hardship variations with each lender |
| Debts larger than you can repay in about 5 years, but some spare income | Counsellor-negotiated plan; compare with a debt agreement |
| Under the debt agreement limits, assets you want to keep, steady income | Debt agreement, after comparing costs |
| Above the debt agreement limits but able to offer a lump sum | Personal insolvency agreement |
| No realistic way to repay, few assets, or facing enforcement | Bankruptcy, after advice |
| Low income, no assets, only unsecured debt | Ask a counsellor whether creditors will waive the debts |
Use the decision checklist, the comparison table and the checklist tool before you sign anything.
When to get professional advice
Get advice before any formal option if you own a home, run a business, are a company director, have debts with a partner or guarantor, hold an occupational licence, have a pending compensation claim, or are being sued. A financial counsellor, a community legal centre or Legal Aid can help for free. Registered trustees can explain bankruptcy and Part X options, but they are paid by the administration.
Frequently asked questions
Is there a government debt relief scheme in Australia?
There is no general scheme that pays off personal debts. AFSA administers the debt agreement, personal insolvency agreement and bankruptcy systems, and the government funds free financial counselling through the National Debt Helpline. Firms using "government" language are usually private businesses.
Does a hardship request hurt my credit score?
An approved hardship arrangement can be recorded as financial hardship information for 1 year instead of missed payments. That is usually less damaging than defaults, which stay for 5 years.
Can I choose which debts go into a debt agreement or bankruptcy?
No. A debt agreement covers all your unsecured provable debts, and bankruptcy deals with all provable debts. Secured debts such as a car loan or home loan continue against the asset.
How much does it cost to go bankrupt?
AFSA does not charge a fee to apply for bankruptcy. Costs arise later through income contributions, asset sales and the trustee's fees, which are paid from the bankrupt estate.
Sources and official help
- Australian Financial Security Authority (AFSA) — debt agreements, bankruptcy, NPII, indexed amounts
- National Debt Helpline — free financial counselling, 1800 007 007
- Moneysmart (ASIC) — managing debt and hardship
- Australian Financial Complaints Authority — complaints about lenders and some collectors
- Federal Register of Legislation — Bankruptcy Act 1966 and National Credit Code
