Worked Examples and Checklists
Debt agreement or bankruptcy? A decision checklist with three worked households
A step-by-step checklist for choosing between hardship, an informal plan, a debt agreement, a Part X agreement and bankruptcy in Australia, with three illustrative households.
To decide between a hardship arrangement, an informal plan, a debt agreement and bankruptcy, answer five questions in order: Is the problem temporary? Could you repay in full with more time or frozen interest? Are you under AFSA's debt agreement limits? What assets would you put at risk? What can you afford every month for three years? If the problem is temporary, start with hardship requests. If you could repay with help, a counsellor-negotiated plan avoids any insolvency record. A debt agreement suits steady income under the limits with assets to protect; bankruptcy suits debts you cannot realistically repay with few assets at risk. The three illustrative households below show how the answers change the choice.
This is the starting point for the worked examples section. Every figure is illustrative. Thresholds are AFSA's from 20 September 2026.
The five questions
| Question | If yes | If no |
|---|---|---|
| 1. Is the drop in income temporary (under about 6 to 12 months)? | Ask for hardship variations | Go to question 2 |
| 2. Could you repay in full within about 3 to 5 years if interest were frozen? | Ask a counsellor to negotiate a plan | Go to question 3 |
| 3. Unsecured debts ≤ $155,773.80, property ≤ $311,547.60, after-tax income ≤ three-quarters of the debt limit (see AFSA's indexed amounts)? | A debt agreement is available | Consider a Part X agreement or bankruptcy |
| 4. Do you have home equity, a car above $9,950 equity, or other assets you want to keep? | Weighs towards a debt agreement or Part X | Bankruptcy may cost you little in assets |
| 5. Can you afford the proposed payment every month for the whole term with a buffer? | A debt agreement can work | A debt agreement is likely to fail |
Also check whether any debt is statute-barred, whether a lender may have lent irresponsibly (a complaint to AFCA can reduce or waive a debt), and whether creditors might write off debts for someone on a low fixed income.
Household A: temporary income drop
Mia, a nurse in Brisbane, is on reduced hours for four months after surgery. She owes $9,000 on a credit card and $14,000 on a car loan, and expects to return to full hours.
- Question 1: yes. The problem is temporary.
- Best first step: hardship requests to both lenders under National Credit Code s 72, asking for reduced payments for four months. She uses the repayment plan calculator to show what she can pay after returning to work.
- Why not a debt agreement: it would create an NPII record lasting at least 5 years for a problem that will resolve itself.
Household B: steady income, too much unsecured debt
Daniel and Priya rent in Adelaide. Daniel alone owes $48,000 across three cards and a personal loan at around 20%. His after-tax income is $68,000. He owns a car with $11,000 equity he needs for work.
| Check | Figure |
|---|---|
| Interest at 20% on $48,000 | About $9,600 a year |
| Monthly payment to clear in 3 years at 20% | About $1,784 |
| Monthly payment to clear in 3 years if interest frozen | About $1,333 |
| Monthly surplus in his budget | About $700 |
- Question 2: no. Even with interest frozen he cannot repay in 3 years; at $700 a month and no interest it would take about 69 months.
- Question 3: yes. He is under all three debt agreement limits.
- Question 4: his car equity of $11,000 is above the $9,950 vehicle limit, so in bankruptcy the trustee could claim the excess.
- Question 5: a debt agreement at $650 a month for 36 months ($23,400 in total) could be affordable.
- Comparison with bankruptcy: his assessed income of $68,000 is below the $77,886.90 base threshold, so he would pay no income contributions, but he could lose about $1,050 of car equity and would face travel and credit restrictions for 3 years.
- Outcome: he should get free advice comparing a debt agreement with bankruptcy. A first step is a counsellor asking creditors whether they would accept a lump-sum or payment offer informally. See the debt agreement cost worked example.
Household C: large debts, no realistic repayment
Graham, 61, in regional Victoria, owes $185,000 after a failed small business, mostly personal guarantees and cards. He receives the Age Pension and has no home or super worth mentioning.
- Questions 2 and 3: no. His debts exceed the debt agreement limit.
- Question 4: he has almost nothing at risk.
- Income contributions: none; his income is well below the threshold.
- Outcome: bankruptcy may be appropriate, or a counsellor may ask creditors to write off the debts because he is "judgment-proof". He should get advice on any guarantees involving other people and on whether his age pension and small savings are protected.
A budget test for any formal option
Before you sign any agreement, run this test on paper:
- Monthly after-tax income: list every source.
- Essential costs: rent or mortgage, food, utilities, transport, insurance, medical, childcare, phone.
- Secured debt repayments you must keep paying.
- A buffer of at least 10% of essentials for irregular costs.
- What is left is the most you can commit to a debt agreement.
If step 5 is close to zero, a debt agreement is likely to fail and you should look at other options.
Related worked examples
- Bankruptcy income contributions for different households — for question 5 if bankruptcy is on the table
- How long each option stays on your credit report — the timeline after you choose
- Joint debts, guarantors and partners — when other people are liable for the same debts
- Debt agreement cost compared with repaying in full
What to bring to a financial counsellor
- a list of every debt with the creditor, balance and account number,
- recent statements and any letters, default notices or court papers,
- payslips or Centrelink statements,
- a rough household budget,
- details of assets, including car registration and any property.
Frequently asked questions
Is a debt agreement always better than bankruptcy?
No. A debt agreement avoids losing assets and some restrictions, but you pay for up to 3 years and it is still an act of bankruptcy with an NPII record lasting at least 5 years. For people with low income and few assets, bankruptcy can cost less and end sooner in practical terms.
Can I try a hardship request and a debt agreement at the same time?
You can ask for hardship while you get advice. Once you lodge a debt agreement proposal, all unsecured creditors are dealt with through the proposal, so separate hardship arrangements for those debts end.
Should I stop paying my debts while I decide?
Not without advice. Missed payments can lead to defaults on your credit report and enforcement. A counsellor can tell you which debts to prioritise, such as rent, mortgage and utilities.
Sources
- National Debt Helpline — free financial counselling, 1800 007 007
- Australian Financial Security Authority — options, thresholds and consequences
- Moneysmart — budgeting and managing debt
- Australian Financial Complaints Authority — disputes about lending and hardship
