Common Questions

What Is the Difference Between Bankruptcy and Debt Agreement?

Bankruptcy Defined

Bankruptcy is one action you can go to if you are insolvent. You are insolvent if you are unable to meet your financial obligations when they become due. In its most simple form is a legal process set out by the laws of Australia that releases a person or business (sole trader) from almost all their debt obligations. It applies to a person or business (sole trader) and both are governed by legislation promulgated by the Australian parliament.

In Australia, Bankruptcy is governed by the Bankruptcy Act of 1966 with subsequent amendments as gazetted by parliament. The Australian Financial Security Authority (AFSA) governs all insolvencies.

Types of Bankruptcy:


If a person or business concludes that they are not financially viable to service their credit obligations, they have the option to declare themselves insolvent. as many costs and legalities can be contained by acting early.

This is a process whereby you apply to be declared bankrupt, and this process will be governed by an appointed trustee. This process is deemed by some to have the most beneficial outcome.


The person or entity with whom you are a creditor can petition to have you declared bankrupt if you fail to keep to the terms in that agreement. The amount owing to them must be more than $5000 and the petition needs to be presented to the Federal Court of Australia.

What Is A Debt Agreement?

The AFSA defines a debt agreement as a legally binding agreement between the debtor and creditors. The terms set out in this agreement can include but are not limited to:

  • The amount agreed to be loaned by the creditor to the recipient.
  • The payment terms
  • The instalment amount
  • The time period
  • Any movable or immovable assets that can be attached as security in the case of defaults.

Some people and businesses that are in financial distress consider debt restructuring options via new Debt Agreements, which is discussed below as a possible alternative to Bankruptcy.

There are other options to Debt Agreements, contact Andrew from Bankruptcy Advisory Centre to discuss what is best for you.

What Is the Difference Between Bankruptcy and Debt Agreements and Why Each Option Could Make Sense?

If you came to the point where your personal or business debt obligations can no longer be met (insolvency), then it means you need to consider alternatives to help remedy the situation as soon as possible.

You can either consider Bankruptcy or revised Debt Agreements. Let’s explore each option to help you gain a better understanding as to what your options could be.


Bankruptcy as mentioned above is a legally dictated and governed process that makes it explicit as to which steps need to be taken when and which decisions are to be taken at the sole discretion of the appointed trustee.

The trustee will evaluate your liquidity and try to sell as much of your assets. The proceeds raised through all sales will then be distributed to all your creditors that are owed. The aim is to get as much liquidity to service as much of your debt as possible which means that creditors are not guaranteed full payment.

Debt Agreements (Possible Alternative To Bankruptcy)

Debt agreements as mentioned earlier is an agreement between the person that is lending the money and the party that provides the money lent. AFSA does mention that Debt Agreements can be seen as an alternative to Bankruptcy.

How it would essentially work is that a willing creditor can re-enter into a new Debt Agreement with the delinquent debtor. A new contract can be drawn up with terms both agree to.

The benefit herein is that the creditor is more likely to know that they will receive their money back albeit at a lower return. This is more beneficial when compared to the sale of assets by a trustee in a bankruptcy process where credits are legally bound to accept the return the trustee was able to derive. Those outcomes are sometimes worse than a simple debt restructure.

The delinquent party owing the money will also stave off the unfavourable credit rating implications that Bankruptcy might bring. It also helps remedy the business relationship between the two parties which is potentially the best reason to consider as an option.


  • I will definitely recommend Andrew Bell to anyone contemplating bankruptcy. Don't wait! Andrew is there to help. With his knowledge, he can advise you of the best path to take and assist with the mind boggling paperwork.
    Best of all, he is there for you through your entire bankruptcy period.
    Get your life back, it's not as bad as you think.
    Thank you Andrew for lifting the burden and allowing me to move on.

    Karilyn Mahon
  • I saw Andrew for 'advice only' on possible bankruptcy due to a divorce. Left an hour later with the paperwork all done and feeling like a new person!
    Andrew was extremely welcoming and made me feel so comfortable with my decision to proceed immediately.
    This was the best investment I have ever made and cannot speak highly enough of Andrew. He doesn't just give excellent service his follow up afterwards is amazing.
    Thankyou Andrew you made my 'new' life so easy to achieve!

    Vicki Johnston

Fill the form below to download our Free Expert Bankruptcy Guide

What you need to know before declaring bankruptcy