3 Types of Bankruptcies in Australia: Bankruptcy, Debt Agreement and PIA

Australia has three formal options for personal debts you cannot repay: bankruptcy, a debt agreement under Part IX of the Bankruptcy Act 1966, and a personal insolvency agreement (PIA) under Part X of the same Act. All three are legally binding, all three are run through the Australian Financial Security Authority (AFSA), and all three put your name on the National Personal Insolvency Index (NPII), a public register. The right one depends on how much you owe, what you earn, what you own, and whether you can keep paying something each month. The figures below are Australian law, checked against AFSA guidance on 15 November 2026. This is not the UK system: the UK has a Debt Relief Order and an IVA, and Australia has neither.

Figure 1: A wooden gavel. Bankruptcy, a Part IX debt agreement and a Part X personal insolvency agreement are the three formal options under the Bankruptcy Act 1966. Photo: KeithBurtis, CC BY, via Flickr.

The three options side by side

The debt agreement limits are indexed every six months, on 20 March and 20 September, so the figures above are the September 2026 limits: unsecured debts $155,773.80, property $311,547.60 (twice the debt limit) and income $116,830.35 (three quarters of the debt limit). Check the current limits on the AFSA website before you apply, as they move.

1. Bankruptcy

Bankruptcy is a legal process where you are declared unable to pay your debts. You apply by lodging a debtor's petition with AFSA, and there is no fee to apply. A trustee takes control of your money and the things you own. The trustee may be a private registered trustee or the Official Trustee at AFSA. Your bankruptcy normally lasts 3 years and 1 day from the day AFSA accepts your petition. If your trustee lodges an objection because you did not meet your obligations, the period extends to 5 or 8 years.

Most unsecured debts are cleared when you are discharged. Some debts stay with you: court fines and penalties, child support and maintenance, and HECS and HELP student debts. Debts you take on after the bankruptcy starts stay yours too. Secured debts such as a mortgage are different again: bankruptcy does not remove the lender's right to the asset, so you keep paying if you want to keep it. If your income is above a set threshold, you must pay part of it to your trustee. You need your trustee's permission to travel overseas. Your name stays on the NPII permanently, and the bankruptcy stays on your credit report for 5 years from the date you became bankrupt or 2 years from when it ends, whichever is later.

2. Debt agreement (Part IX)

A debt agreement is a legally binding deal between you and your creditors to repay part of what you owe over a set term, without becoming bankrupt. You must be insolvent, which means unable to pay your debts as and when they fall due. A registered debt agreement administrator runs it: they check your finances, put a proposal to your creditors, and collect your payments and share them out. Creditors vote on the proposal, and a majority by debt value must accept it. Interest and charges stop once the agreement is accepted.

The term is 3 years if you do not have an interest in your home, or 5 years if you do. The limits are the gate: your unsecured debts must be under $155,773.80, your property under $311,547.60, and your income under $116,830.35 (September 2026 figures). Fees are paid to AFSA and to the administrator, and they come out of your payments. Your name stays on the NPII until 5 years after the agreement was made, or until it ends, whichever is later, and the agreement stays on your credit file for 5 years from the start or 2 years after it ends, whichever is later. You cannot propose a debt agreement if you have had one in the previous 10 years.

Figure 2: A wooden gavel. A PIA is the flexible option: the proposal can be instalments, a lump sum, an asset sale, or a mix, and creditors pass it only if a majority in number and 75% in value agree. Photo: Visual Content, CC BY, via Flickr.

3. Personal insolvency agreement (Part X)

A personal insolvency agreement is a legally binding deal between you and your creditors that settles your debts without bankruptcy. There are no debt, income or asset limits, which is why it is the option for people whose debts are above the debt agreement cap. You appoint a controlling trustee, usually a registered trustee or a solicitor, and give them three documents: an authority under section 188 of the Bankruptcy Act, a statement of your affairs, and a draft of the agreement. Signing the section 188 authority is itself an act of bankruptcy, and the trustee registers it with AFSA.

The controlling trustee must call a meeting of creditors within 30 business days and report on whether your proposal or your bankruptcy would give creditors a better return. At the meeting, creditors pass the proposal only by special resolution: a majority in number and at least 75% in debt value of those who vote. If it passes, it binds all unsecured creditors, even those who did not attend or voted against it. The proposal can be instalments, a lump sum, the sale of an asset, money from a third party, or a mix. If it fails, creditors can ask you to present a debtor's petition within 7 days, but that does not make you bankrupt on its own. PIAs are rare: in May 2025 AFSA recorded 1,087 new personal insolvencies, made up of 620 bankruptcies, 451 debt agreements and only 16 personal insolvency agreements.

Worked example: the debt agreement limit decides it

Take a person with $40,000 of unsecured debts, $70,000 of income, no property and no interest in a home. The debt agreement test is $40,000 against the $155,773.80 limit, and $40,000 is under it. Income of $70,000 is under the $116,830.35 limit. Property of $0 is under the $311,547.60 limit. All three tests pass, so a 3 year debt agreement is open to them, and bankruptcy and a PIA are open too.

Now change one number: debts of $200,000. The test is $200,000 minus $155,773.80, which is $44,226.20 over the limit. A debt agreement is closed, whatever the income and property figures are. The choice is now between a PIA, which has no debt limit but needs creditors to pass it by special resolution, and bankruptcy, which has no limit and needs no vote. That single subtraction is the fastest way to narrow the three options down to two.

Which option fits

• Debts under $155,773.80, steady income, home to keep: a debt agreement. You repay part of what you owe over 3 or 5 years, and the debts in it are cleared at the end.
• Debts over the cap, assets or income to put on the table: a PIA. You write your own proposal, and creditors pass it only if it beats what bankruptcy would give them.
• Debts of any size, no income to repay them, other options do not fit: bankruptcy. It is free to apply and usually ends after 3 years and 1 day, but your home and assets are at risk and the NPII record is permanent.
• You can still pay, just not all at once: none of the three. Talk to a free financial counsellor first about hardship arrangements with your lenders, which do not touch the NPII at all.

Get free advice first

Do not choose an option on your own. Free financial counselling is available from the National Debt Helpline on 1800 007 007, and AFSA publishes guidance on all three options at afsa.gov.au. A financial counsellor will check which options you qualify for, what they cost, and what they do to your home and your credit file. Be careful with firms that charge for debt agreement advice: the free services do the same checks for nothing. This guide gives general information only and is not legal or financial advice.

Sources: AFSA, What is bankruptcy, Consequences of bankruptcy, and Bankruptcy: A fresh start (bankruptcy normally lasts 3 years and 1 day, extends to 5 or 8 years on objection, NPII permanent, credit report 5 years from start or 2 years after discharge whichever is later, most unsecured debts covered); AFSA practice guidance on the end of bankruptcy (automatic discharge 3 years and 1 day after acceptance); Legal Services Commission of South Australia, Debt Agreements (Part IX, 3 year maximum or 5 years with an interest in a home, September 2026 limits $155,773.80 debts, $311,547.60 property, $116,830.35 income, NPII removed 5 years after the agreement was made, or when it ends if later); Worrells and Rapsey Griffiths, Part X personal insolvency agreements (section 188 authority, creditors meeting within 30 business days, special resolution majority in number and 75% in value); Legal Aid NSW, Bankruptcy (debts not covered: court fines, child support and maintenance, HECS and HELP debts, debts after bankruptcy starts); AFSA insolvency statistics May 2025 (1,087 new personal insolvencies: 620 bankruptcies, 451 debt agreements, 16 PIAs); AFSA, I'm having trouble paying my personal insolvency agreement (information about a PIA remains on the NPII permanently); Bankruptcy Amendment (National Personal Insolvency Index) Regulation 2015 (debt agreement information removed 5 years after the agreement was made, or when it ends if later). Figures checked 15 November 2026. This guide is general information, not legal advice.

Frequently asked questions