Part 9 Debt Agreement: Proposal and Administration

Identify the Agreement and Test Eligibility

A Part IX debt agreement settles debts through a statutory proposal and creditor vote. It is an alternative to bankruptcy. An informal settlement depends on the participating creditors’ arrangements, while a consolidation loan creates new borrowing. A personal insolvency agreement follows the separate Part X process.

Treat “Part 9 bankruptcy” as potentially misleading shorthand. Proposing a debt agreement is an act of bankruptcy that can support a creditor’s court application, but it does not itself make the debtor bankrupt. Keep a possible bankruptcy application separate from the proposal’s status.

Apply the Australian Financial Security Authority (AFSA) eligibility criteria before drafting. The debtor must be unable to pay debts when due. They must also satisfy the income, unsecured-debt and property limits, with no bankruptcy, debt agreement or personal insolvency agreement in the preceding 10 years.

Eligibility Figures to Reconcile

AFSA’s indexed amounts give the monetary ceilings. Apply the amounts relevant when the proposal is lodged and retain the applicable schedule in the file.

Eligibility measure	AFSA ceiling	Evidence to reconcile
Unsecured debts	$155,773.80	Creditor balances and unsecured shortfalls
Divisible property	$311,547.60	Ownership, value and valid secured claims
Estimated after-tax income for the coming year	$116,830.35	Earnings forecast and income-tax assumptions

Divisible property includes assets available to a bankruptcy trustee, after relevant secured claims. Assess the debtor’s interests across assets beyond their bank balances. Keep the eligibility income calculation separate from household disposable cash: necessary spending does not reduce income for the statutory income ceiling.

Reconcile Income, Debts and Property

Build the proposal schedules from records that explain the debtor’s income and commitments. Obtain statements for the accounts used, payslips, creditor demands, loan contracts, ownership records and evidence of necessary household expenses. Reconcile jointly held liabilities and the debtor’s share of household costs separately.

A transfer from savings to a transaction account increases one account’s receipts without increasing household income. Match both sides before calculating the contribution. Investigate unexplained regular credits, payments to unlisted lenders and transfers to accounts absent from the bundle. Record the explanation and its effect on the schedules.

AFSA’s certification guidance requires reasonable grounds for affordability and full disclosure. The administrator must look behind the supplied budget. Casual earnings need evidence over a period that supports the forecast, while annual expenses need an allowance between payments.

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Fictional Monthly Affordability Example

Assume a debtor has $48,000 of admitted unsecured debt and proposes 36 monthly contributions of $700. These figures illustrate cash flow and distribution, not an administrator’s quote.

Monthly item	Base case	After overtime ends
After-tax household income available to this budget	$4,800	$4,200
Necessary household expenses, including annual-cost allowances	$3,600	$3,600
Continuing secured car-loan payment	$250	$250
Proposed debt agreement contribution	$700	$700
Cash remaining	$250	Negative $350

The base calculation is $4,800 minus $3,600, $250 and $700, leaving $250. Losing $600 of overtime produces a $350 monthly shortfall. Before certification, establish whether the overtime is sustainable or change the proposal assumptions. Drawing $350 from savings each month requires a funded plan for the whole period.

Prepare a Proposal Creditors Can Assess

Prepare one consistent account of what the debtor will pay and what creditors can expect after deductions. Identify every liability, including secured and contingent claims. Separate debts entitled to distributions from obligations that continue outside the agreement.

Set out the contribution amount and frequency, payment period, any property contribution and the administrator’s remuneration. Show the lodgement charge, estimated realisations charge and permitted expenses separately. Explain whether each cost is paid upfront or deducted from contributions. AFSA’s debt agreement overview explains that administrator fees differ and must appear in the proposal.

In the fictional example, 36 payments of $700 total $25,200. Assume the disclosed deductions from those contributions total $6,000. Creditors then share $19,200: 40 cents per dollar of the $48,000 admitted debt. A creditor owed $12,000 receives $4,800 on those assumptions. This is a fictional aggregate deduction, not a fee benchmark or a promised return.

Compare that return with a bankruptcy estimate using the same assets and liabilities. Explain realisation costs, expected contributions and assumptions behind the alternative. A higher estimated dividend does not guarantee acceptance, and the proposal does not remove a secured lender’s enforcement rights.

Use this submission sequence under AFSA’s lodgement procedure:

1. Confirm the proposed administrator’s registration and appointment. Give the debtor the prescribed information and explain the consequences and alternatives.
2. Complete the proposal, explanatory statement and statement of affairs. Reconcile their figures and obtain the administrator’s required certificate.
3. Obtain the debtor’s signatures, then lodge within 14 days. Submit electronically through Debt Agreements Online or the authorised business-to-government channel.
4. Retain the signed documents and submission confirmation. Record AFSA’s subsequent acceptance for processing separately from the eventual creditor decision.

AFSA’s Debt Agreements Online guidance identifies a confirmation page and form reference number after successful submission. A reference proves submission, not that creditors have accepted an agreement.

Follow Creditor Voting and the Recorded Outcome

Creditors assess the proposal through AFSA’s claim and voting process. AFSA sends the proposal material and specifies the deadline. Use that notified deadline, including the applicable seasonal extension, rather than calculating every voting period as five weeks.

A creditor’s Claim and Vote form establishes the claim and records a yes, no or abstention. A secured creditor votes for its unsecured shortfall. The result requires a majority in value of eligible creditors who lodge valid votes. Votes from the administrator and its related entities are excluded. Bring disputed voting entitlements to the Official Receiver before the deadline.

AFSA’s debt agreement practice guidance distinguishes acceptance for processing from the recorded voting result. Keep the outcome notice and reconcile it with the National Personal Insolvency Index (NPII), the public insolvency register.

A lodged proposal is awaiting assessment or voting. An accepted agreement binds creditors with provable debts, including those who voted against it or abstained. A rejected proposal creates no agreement. Following rejection, assess renewed recovery action and bankruptcy exposure before recommending another step. Use the separate guide to bankruptcy consequences when that becomes the client’s decision.

Administer Payments, Changes and Default

Administer the accepted payment schedule against actual receipts and distributions. AFSA’s proper-accounts guidance requires separate records for each administration and bank reconciliation at least every 45 days. Record dishonoured receipts and reversals so an unsuccessful payment cannot appear as a completed contribution.

Maintain the creditor balances, authorised deductions and distribution history alongside the accepted terms. Retain supporting payment records and provide the required reports. When a claim changes, establish its basis and recalculate the effect on each creditor’s distribution.

Repayment Period and Changed Circumstances

For a new proposal, payments generally cannot extend beyond three years from the agreement being made. A qualifying interest in the debtor’s Australian principal residence can allow five years. The longer proposal cannot offer that qualifying home interest for distribution. The Bankruptcy Act’s Part IX rules govern the conditions, including variations after substantial unforeseen changes.

When income falls or expenses rise, compare an updated evidenced budget with the remaining obligations. AFSA’s creditor guidance explains the proposal and creditor vote needed for a variation. A request, an administrator’s discussion or a lodged variation does not itself change the accepted payments. Keep the effective variation and revised schedule when approved.

For missed payments, reconcile what became due, what was paid and how receipts were allocated. A designated six-month arrears default has a statutory definition. Under sections 185LC and 185QA, the administrator notifies the Official Receiver, who determines the default and records termination. Do not treat any late payment as immediate termination.

Where payments cannot recover, assess a termination proposal or other applicable statutory route promptly. Termination can restore creditors’ recovery of remaining debts.

Confirm Completion and Explain Continuing Effects

Confirm completion only after the debtor’s obligations are satisfied and the administrator has distributed the money. Reconcile contributions and property proceeds against deductions, creditor payments and any remaining balance. Retain the final receipts-and-payments statement, completion notification and AFSA confirmation. The last debtor payment alone is insufficient evidence that administration has finished.

Completion releases most covered unsecured debts. Identify continuing obligations individually, including debts outside the release and another borrower’s liability for a joint debt. Secured creditors retain their security rights. AFSA’s guidance on debts covered by an agreement distinguishes these categories.

Life After a Part 9 Debt Agreement

Completion and removal of a historical record are separate events. AFSA’s consequences guidance explains that a completed agreement remains on the NPII until the later of five years from making the agreement or completion. Credit reporting has separate retention rules. The Office of the Australian Information Commissioner’s credit-report guidance describes periods that can extend beyond five years.

Employment restrictions depend on the occupation and licensing regime. For example, the Queensland Law Society’s insolvency guidelines include Part IX arrangements in its assessment of insolvent practitioners. They require a practising-certificate assessment, not an automatic ban on all employment. Identify the client’s actual regulator and notification duties before relying on their continuing earnings.

If the client proposes new borrowing, prepare a separate lending assessment using their current income, commitments and credit records. Completion does not guarantee access to credit. Close the insolvency file with the completion evidence and a written explanation of the specific obligations and records that remain.