An Evaluation of Debt Agreements in Australia

Abstract

In the 20 years since their introduction, debt agreements have become the fastest growing form of personal insolvency in Australia, comprising 41.5 per cent of all personal insolvencies in 2016. Debt agreements were introduced to provide debtors respite from financial stress through arrangements with creditors and to provide a viable alternative to bankruptcy. Law reformers posited that their low cost, and the avoidance of some of the consequences of bankruptcy, were among their key benefits. The article draws on three sources of empirical data to evaluate the debt agreement system and its impact on Australian debtors: statistics published by the Australian Financial Security Authority, a survey of individuals who entered into debt agreements or declared bankruptcy between 2010 and 2015, and interviews with a range of industry stakeholders. The article considers the extent to which debt agreements are achieving their objectives and examines concerns that debt agreements may be causing harm, particularly to vulnerable debtors on low incomes. The authors propose a series of reforms to enhance the efficiency of debt agreements.

Keywords: personal insolvency, debt agreement, bankruptcy