What is a debt agreement?

A debt agreement under Part IX of the Bankruptcy Act 1966 is a simple, low cost method allowing debtors to negotiate a legally binding arrangement with their creditors. The agreement provides additional protection that private arrangements do not afford to debtors. There are also additional consequences.

It involves a person in debt proposing a deal with their creditors. The debt agreement proposal may be accepted or rejected by a vote of creditors. A proposal is accepted if a majority of creditors with 75% of the value of debts vote in favour of the deal. All relevant creditors are bound – even those who voted against the proposal.

Some examples of the kinds of deals put in place are:
• payment of less than the full amount of debts,
• a moratorium on payment of debts,
• a transfer of property from the debtor to one or more creditors in full or part payment,
• periodic payments of amounts out of the debtor's income to creditors either collectively or individually.