Alternatives to bankruptcy: What you need to know before making a final decision

When financial distress hits, bankruptcy often feels like the only option. For many individuals, the perception is that you either soldier on or fall straight off the financial cliff. But in reality, there are several alternatives that may help you avoid bankruptcy while achieving a better outcome for both you and your creditors.

With over 25+ years’ experience managing corporate and personal insolvency matters across Queensland and beyond, I’ve seen first-hand how exploring the full range of options can protect assets, reduce stress, and in many cases, prevent long-term financial damage. 

Key alternatives to bankruptcy

Debt Agreement (Part IX Debt Agreement)

• Best suited for individuals with lower levels of debt, income, and assets.
• Current caps are approximately $144,000 in unsecured debts, $288,000 in assets, and $108,000
  in after-tax income.
• Can freeze interest on unsecured debts, making repayment more manageable.
• A practical, cost-effective option for lower-income earners with modest debt levels.

Personal Insolvency Agreement (PIA)

• No caps on debt, income, or asset values.
• More flexible in timeframes and payment arrangements.
• Involves a higher level of investigation than debt agreements, including a review of any voidable transactions.
• Often used to protect significant assets, such as the family home, by offering creditors a better return than they would receive under bankruptcy.

Informal Payment Arrangements

• Works best with a small number of creditors, particularly when debts have been sold to debt collectors.
• Can result in negotiated lump sums or reduced repayments.
• Less structured than formal agreements, but suitable for smaller debt situations.

When these options work best 

Alternatives to bankruptcy are most effective when pursued early, ideally before creditors take legal action. The longer you wait, the fewer options remain. 

For example, I often recommend a PIA to help clients keep their family home. Whether or not the property is jointly owned with a spouse or a family relative, we can propose a contribution plan to creditors so that the property does not have to be sold. This not only allows the family to stay in their home but also delivers creditors a better financial return. 

The risks of delaying action 

Too often, I see individuals refinance at high interest rates or take out short-term loans secured against personal assets. While this might offer temporary relief, it can transform a company debt problem into a personal financial crisis, often with the family home on the line. 
Another common pitfall is acting on bad advice. Bankruptcy and its alternatives are governed by clear legislation, and misinformation, whether from “pub talk” or well-meaning but uninformed advisers, leading to irreversible mistakes.

The role of a registered trustee 

A registered trustee or insolvency practitioner can: 

• Explain all available options, including their pros and cons.
• Assist you to prepare your proposal to creditors that will be more beneficial than bankruptcy for you and your creditors.
• Manage the process in line with legislative requirements.
• Reduce stress by providing clarity and a clear plan forward.

Signs it’s time to seek professional help 

• Constant calls or letters from creditors.
• Difficulty paying bills or meeting loan repayments.
• Relying on new loans to pay off old debts.
• Foreseeing an upcoming cashflow gap (e.g. large tax bills, seasonal downturns).

Even if you suspect trouble is ahead, seek advice early. Knowing your options in advance can make the difference between keeping and losing valuable assets.

Taking the first step 

Start by taking stock of your situation: 

• List all debts, amounts owing, and repayment dates.
• List all assets and their estimated values.
• Identify whether any assets are secured against loans.

With this information, an insolvency professional can quickly assess whether selling assets, restructuring debt, or proposing an agreement to creditors is the best path forward.

Bankruptcy is not inevitable. Whether through a debt agreement, personal insolvency agreement, or an informal arrangement, there are ways to manage debt that can reduce the long-term impact on your financial future. 

The earlier you seek advice, the more control you have over the outcome and the better your chances of protecting what matters most. Give us a call today, and let’s navigate this next step together.