Quick answer
Business debt can be written off only in limited cases: the creditor agrees to accept less or waive it, the limitation period has expired and the creditor can no longer sue, or a formal process such as a deed of company arrangement or liquidation ends the claim. Waiting rarely works, because payments and written acknowledgements can restart the clock. The most reliable route is a funded lump-sum settlement.
Key points
- Debts don't disappear because time passes. A limitation period only stops a creditor suing, and a payment or written acknowledgement can restart it.
- Contract debts generally have a six-year limit in most states and territories, but court judgments last much longer, so check which one you have.
- A creditor writes off part of a debt when a certain lump sum looks better than a slow chase or a small dividend.
- ASIC's 2026 review found a median DOCA dividend of 11.5 cents in the dollar, which is why many creditors prefer a funded settlement.
- Never pay a 'small amount to show good faith' on an old debt until you know whether it restarts the clock.
If you’ve typed “can business debt be written off” into a search bar, you’re probably hoping one of two things: that the debt expires if you wait long enough, or that someone will wipe it. Neither is how it usually goes. But there is a third thing that does happen regularly: a creditor agrees to accept less than the full amount, once and for all. That’s the realistic version of a write-off, and it’s driven by cash.
This guide separates the myths from the routes, so you know which one applies to your debt and what a lump sum can do.
Can a business debt be written off at all?
Yes, in four situations. Only one is in your control.
| Route | How it ends the debt | Who decides |
|---|---|---|
| Creditor agrees to accept less (settlement or waiver) | Debt is closed on payment of the agreed amount | The creditor, on your offer |
| Limitation period expires | Creditor generally can’t sue to recover it | The calendar, but it can restart |
| Deed of company arrangement (DOCA) | Creditors accept a set return under the deed | A creditor vote, with an administrator |
| Liquidation | Company’s unsecured debts are usually left unpaid | A liquidator, at the end of the company |
The first is the only one you can start tomorrow, and the only one that lets the business keep trading. The others are either out of your hands or end the company.
Does waiting out the six years work?
The idea is popular, and partly true. In most Australian states and territories a creditor has six years from when an ordinary contract debt fell due to begin court action, and the Northern Territory’s period is shorter. After that, the creditor generally can’t sue.
The catches are bigger than the rule:
- It stops the lawsuit, not the debt. A creditor can still ask you to pay, and collectors still call.
- The clock restarts. Financial Rights Legal Centre’s NSW guidance says a part payment, or a written acknowledgement of the debt, restarts the period. Its examples of acknowledgement are asking for a repayment arrangement or an account statement for that debt.
- Different debts, different periods. Secured loans, deeds (which commonly cover guarantees) and judgments can run for 12 years or more in NSW, and some states differ again.
- A judgment is the debt that lasts. If the creditor already went to court, the clock that matters is the judgment’s, not the original debt’s. Our guide to court claims for business debt covers how that stage starts.
The mistake that costs the most: an owner gets an old letter, wants it to go away, and pays “a little to show good faith” or emails asking for a payment plan. That can restart six years of exposure. Before you pay or reply, check the date of your last payment, the date of the last time you acknowledged the debt in writing, and whether a judgment exists.
Limitation rules are set state by state, so if a debt looks old, confirm the period for your state and debt type with a lawyer before relying on it. Never ignore a court document, though: a claim or judgment needs a response on its own clock, whatever the age of the debt.
Why would a creditor accept less than they’re owed?
Because from their side, full recovery isn’t the choice on the table. The choice is between:
- Chasing you, with letters, collectors and possibly court, none of which is free or certain.
- Pushing you into insolvency, then waiting for a dividend that may be small or nil.
- Taking a certain lump sum now and closing the file.
The data on option two is sobering. ASIC’s July 2026 review of voluntary administrations (1 July 2021 to 30 June 2025) found that almost 90% of completed DOCAs paid unsecured creditors something, with a median of 11.5 cents in the dollar and an average of about 21 cents. For smaller companies, with liabilities under $1 million, fewer than a third of appointments produced an approved DOCA, and most ended in liquidation without a proposal being put to creditors. ASIC’s October 2026 liquidations report found only 5.3% of finalised liquidations paid unsecured creditors a dividend, and the median return where one was paid was 9.8 cents in the dollar.
A creditor who understands those numbers can see why a funded offer, even at a discount, may beat the alternative. That reasoning is your negotiating position. It isn’t a bluff, and it works best when the offer is credible. For the mechanics of offers and agreements, see our page on funding a lump-sum settlement.
Which debts are most likely to be settled for less?
| Creditor | Likelihood of a discount | Notes |
|---|---|---|
| Collection agencies and debt buyers | Often good | They may have bought the debt for a fraction of its face value |
| Trade suppliers you’ve stopped using | Often good | They want the file closed |
| Suppliers you still need | Mixed | You may choose to pay in full to keep terms |
| Landlords | Case by case | Often prefer a payment deed to losing a tenant |
| Banks and secured lenders | Rarely, unless the security is short | Consider refinancing instead |
| The tax office | Rare | Treat it as a pay-in-full debt. If it’s your main problem, that’s a different guide, not this one |
Debts backed by a personal guarantee need extra care, because a settlement with the company doesn’t automatically release the guarantor. Read what happens when a guarantee is called before you sign anything.
How does a funded settlement work, step by step?
Here’s the sequence that tends to produce a yes.
- List every debt and its next date. The business debt review guide shows how to rank them in one evening. You can’t negotiate with five creditors if you don’t know which one has a deadline this week.
- Check for a judgment or a limitation issue. Both change what you offer, and both can change your risk if you pay.
- Decide the amount you can fund. A creditor won’t believe an offer that depends on money you don’t have yet. Work out what a property-secured or cash flow loan could provide.
- Make the offer in writing, with reasons: what they’d likely receive otherwise, and that payment would be made by a set date.
- Get the settlement agreement signed before you pay. It should name the debt, the amount, the payment date, and say the payment is accepted in full and final settlement, with any legal action withdrawn.
- Pay on the date, and get written confirmation. Then ask the creditor to update any credit listing.
Step 3 is where funding comes in. If you’ve got unused equity in a home or commercial property, a property-secured loan can supply the lump sum. If the business trades steadily, unsecured cash flow funding may fit smaller debts. Either way, a funder will want to see the signed settlement terms, so it helps to line them up together.
An example (illustrative only)
A small manufacturer owes a supplier a large unpaid account after a customer went under. The supplier has sent two letters of demand and is talking about a court claim. The owner can’t pay it all in one go, and also owes a smaller trade creditor.
Instead of paying a token amount each month, the owner lists both debts, confirms there’s no judgment, and works out that equity in a commercial property could fund a lump sum. They offer the supplier a single payment by a set date in return for a signed full-and-final settlement. The supplier, weighing a drawn-out claim against certain money, accepts a reduced figure. The owner pays the second creditor in full to keep supply. One loan has replaced two open debts, and neither creditor is chasing.
That’s an illustration, not a promise. Not every creditor will agree, and some debts need to be paid in full.
When will funding not help?
Being straight about this matters. A funded settlement doesn’t suit every case:
- The debt is genuinely disputed. Challenge it first.
- The business loses money every month. A loan clears history, not an ongoing loss.
- The creditor won’t settle. Some creditors, such as secured lenders or the tax office, expect full payment, so a settlement isn’t the tool.
- A formal process is the right answer. For some businesses, administration, a restructure or liquidation is the honest answer, and we say so. Our overview of alternatives to voluntary administration compares them without taking sides.
Ready to find out where you stand?
Most debts don’t get written off by waiting, but plenty get settled by someone who turns up with a credible lump sum and a clear offer. If you’ve been carrying a debt you’d rather close for less, the next step is working out how much you could fund and how fast.
Our enquiry takes about 60 seconds, and there is no credit check when you enquire, so your credit file isn’t touched just for asking. We don’t send your details out to a pile of lenders, so you won’t get a flurry of calls. A real person looks at your situation and phones you to talk it through, including whether funding is realistic for your timing.
Please fill the form in accurately, including the debts, the amounts and any dates on letters or court papers. That’s what lets us match the right route the first time.
Frequently asked questions
Does business debt disappear after six years in Australia?
Not automatically. In most states and territories a creditor has six years from when the debt fell due to start court action on an ordinary contract debt, and the Northern Territory's period is shorter. Once that passes, the creditor generally can't sue, but the debt isn't erased. The period can also restart, so check the dates and get advice before relying on it.
What restarts the limitation period on a debt?
A part payment or a written acknowledgement of the debt can restart the clock. Financial Rights Legal Centre's NSW guidance gives requesting a repayment arrangement or an account statement as examples of acknowledgement. The rules differ by state, and a payment made after the period has already expired may not revive it in some places, so don't test it by paying a token amount.
How long can a creditor chase a court judgment?
Much longer than an ordinary debt. In NSW the guidance is at least 12 years from the date of judgment, and some states allow longer. A judgment can also be enforced through a bankruptcy notice or a winding-up route, so an unpaid judgment is the debt least likely to fade away.
Will a creditor accept less than I owe?
Often, yes, particularly trade suppliers, collection agencies and debt buyers. They weigh your offer against the cost and uncertainty of chasing you, or the small return from an insolvency process. A certain lump sum, with a reasoned offer and a written settlement agreement, is what usually gets a yes.
Can I borrow money to settle a debt for less?
Yes, for business purposes. Depending on your situation that can be unsecured cash flow funding or funding secured against property. The lender will want to see the signed settlement terms and how you'll repay. Whether it can be arranged in time depends on the security, the documents and the days left.
Does a settled debt still show on my credit file?
It can. A debt settled for less than the full amount may be recorded as settled rather than paid in full, and how long listings stay depends on the credit bureau and the type of listing. Ask the creditor in the settlement agreement to update or withdraw any default listing, and check your file afterwards.
Is a deed of company arrangement the same as a write-off?
It's a formal way for a company's creditors to accept a set return, but it needs an administrator and a creditor vote. ASIC's 2021 to 2025 review found a DOCA was proposed and approved for less than a third of smaller appointments with liabilities under $1 million, so it often isn't available to small companies.
What about director personal guarantees if the company's debt is written off?
A write-off agreed with the company doesn't necessarily release a guarantor. Settlement terms should say whether the creditor releases the guarantee on payment. If a guarantee is called, our guide on demands on personal guarantees explains the stages.