Some people think bankruptcy is an easy way out from debt, but it’s not for everyone.

It is important to understand the options available and the implications of each course of action.

If you’re experiencing financial hardship and unable to pay your debts, the first important step is to contact your creditors to discuss repayment plans. They have an obligation to assist you and it can be a straight-forward way to avoid more serious options. Should you find yourself still struggling with bills, contact an independent financial counsellor for assistance with your next steps. Depending on the severity of your situation, two options they may discuss with you are a Part 9 Debt Agreement and bankruptcy.

A Part 9 Debt Agreement is an agreement between you and your creditors regarding your debts. The agreement covers a repayment plan, where you pay back what you can afford over a set amount of time. It does not cover all debts, for example joint debt or secured debts.  This agreement still falls under the Bankruptcy Act so it is a serious step to take. It will still appear on your credit file for a minimum of five years, however the ramifications are not as far reaching as going bankrupt. You can read more about a Part 9 Debt Agreement here.

In contrast, bankruptcy means you can automatically lose your assets and there are restrictions on travel. Your income is also assessed yearly and there are compulsory contributions. Bankruptcy is also listed on your credit file.

A useful comparison table of both options is available from the Australian Financial Security Authority. If you would like more guidance, Managing Debts from MoneySmart is a good resource and provides advice on understanding and dealing with debt.

The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. 

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It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:
For more information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor.

Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan.
If you are on government benefits, ask if you can receive an advance from Centrelink.

The Australian Government’s MoneySmart Website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.