Don't Want to Go Bankrupt?
There Are Two Other Roads
ONE IS A PAYMENT PLAN. THE OTHER IS A NEGOTIATION.
Last issue: what bankruptcy takes from you.
This issue: you can't pay, but you don't want to go bankrupt.
The law leaves you two formal roads.
More than one road. Look before you choose | Source: Pexels
Both roads live in the Bankruptcy Act and both have clumsy names: a Part IX debt agreement and a Part X personal insolvency agreement. Ignore the names. Remember what they are: one is a payment plan, the other is a negotiation.
01／Part IX: I pay part of it on a schedule, the rest is wiped
At its core, this is a repayment schedule. You tell all your creditors: I owe $150,000 in total; I will pay $250 a week for three years, $39,000 all up, and you write off the rest. Creditors vote. If voting creditors holding more than half the debt by value say yes, it binds everyone, including the ones who said no. You pay to the schedule; once complete, the unsecured debts covered by the agreement are released. While it runs, interest on those debts is frozen and creditors cannot pursue them.
It is a production line. A registered debt agreement administrator works out the numbers and lodges the proposal with AFSA, which then puts it to creditors for a vote. The process is standardised, so the cost is relatively low. And because it is a production line, it only fits "small and simple" cases. Three limits, all of which you must be under. As at August 2026 they are: unsecured debts of no more than $150,950.80, divisible assets of no more than $301,901.60, and after-tax income of no more than $113,213.10 a year; and, in the previous 10 years, you must not have been bankrupt, entered a debt agreement, or gone through a Part X process (including signing a controlling trustee authority). These amounts are adjusted periodically (on 20 March and 20 September each year); the latest figures published by AFSA govern.
An agreement normally runs for up to 3 years; if you own your home you may propose up to 5, and in cases of substantial and unforeseen change it can be extended to 5. What it deals with is how your income over the next few years is shared out among creditors; your assets are largely left alone. So a wage earner with debts in the tens of thousands and little equity in the home is the typical person on this road.
02／Part X: I bring someone in to negotiate for me
At its core, this is a bespoke restructuring negotiation. You first appoint a licensed controlling trustee (a solicitor or a registered bankruptcy trustee), sign an authority under s 188, and they take control of your finances, investigate, and write a report that tells creditors: "Here is what you would get if this person went bankrupt, and here is how much more the proposal gives you." A meeting of creditors is then held within 30 business days to vote.
The proposal can be anything: a lump sum, instalments, selling one investment property but keeping the family home, a family member paying a sum in exchange for creditors walking away. That is why there are no eligibility limits: it exists precisely for people whose debts are too big or whose assets are too complex for the Part IX production line. The vote is harder to win too: a majority in number and at least 75% by value of voting creditors must approve. The trustee does far more work, so it costs noticeably more than Part IX.
What it deals with is the restructuring of your assets and debts as a whole. A small-business owner with property and a business, who wants to keep some of it, is the person this road is for.
03／Three things true of both roads
First, neither road is an ordinary private negotiation: once formally started, each carries consequences under bankruptcy law. Lodging a Part IX debt agreement proposal, and signing a Part X section 188 authority, are each an "act of bankruptcy" under the Bankruptcy Act. That means if the proposal is later rejected, the agreement fails, or the debt problem remains unresolved, a creditor who meets the statutory conditions can rely on that act of bankruptcy to apply to the court to make you bankrupt, without necessarily having to start again from a bankruptcy notice.
Second, both leave a formal personal insolvency record, but for different lengths of time. A Part IX is entered on the National Personal Insolvency Index (NPII), but not permanently: once completed, it is normally removed on the later of 5 years from the date the agreement was made or the date its obligations are discharged. A Part X is different: the record of signing the s 188 authority stays on the NPII permanently. Both may also remain on your personal credit report for 5 years or longer. One more difference: you can still be a company director under a Part IX; you cannot while a Part X agreement is running. "Avoid bankruptcy and there is no record" is a myth.
Third, both need creditors to say yes. Bankruptcy needs nobody's consent; these two do. So the proposal has to make creditors believe they will get more than they would from your bankruptcy, or they will simply let you go bankrupt.
When is bankruptcy actually the right answer? If the debt is far beyond what you could repay in a few years, there are no assets worth protecting, and you are not a director, going bankrupt is often cheaper and ends sooner. Dragging things out with a Part IX just adds an administrator's fee.
A payment plan or a negotiation:
it comes down to what you owe, what you own, and what you want to keep.
Put those three numbers on the table and the road becomes clear.
Sun Lawyers · Sydney Office
If debt is closing in and you want to know which road is yours, contact Sun Lawyers. We work in both English and Mandarin.
Phone: 02 9267 4988 ｜ Email: enquiry@sunlaws.com
Sydney Office: Suite 703 & 704, 265 Castlereagh Street, Sydney NSW 2000
Website: sunlaws.com.au
This article is general legal information only and is not legal advice.
Please contact us for advice specific to your situation.