Personal Insolvency

A Personal Insolvency Agreement (PIA) is a legal alternative to Bankruptcy that allows a debtor propose a formal arrangement with his/her creditors to discharge the outstanding debts either over time or for a lesser amount.

A PIA is far more flexible and has less restrictions and obligations on the debtor than if a formal bankruptcy was required. Further, a PIA, if agreed, binds all creditors to the proposal and will protect the debtor from bankruptcy provided he/she complies with the terms of the agreement.

A PIA requires creditor approval and will usually operate over a two to five year period.

At least 75% of creditor votes in value and 50% of creditor votes in number of those actually voting are required to vote in favour of a proposal for a Personal Insolvency Agreement to be successful.

The eligibility criteria for entering into a Personal Insolvency Agreement are as follows;

Unsecured Creditors more than $94,530.80; or

Assets more than $94,530.80; or

Income more than $70,898.10 (after tax); about $95,688.00 (before tax)

If a debtors position is less than the figures shown above, they may be eligible to propose a Debt Agreement.

A Personal Insolvency Agreement offers a number of advantages;

• Avoidance of formal bankruptcy
• If agreed, all creditors are bound by the PIA so long as the debtor complies with the terms of the PIA.
• Once the terms of the PIA are fulfilled, there will be no on going obligation to the creditors.
• Depending on the terms of the PIA, one monthly payment will be made and applied proportionately to creditors debts.
• Reduced stress of having to deal with irate creditors
• Employment will probably not be affected by a PIA. In fact, your employer will not know of the PIA unless you choose to tell them.

In initiating a Personal Insolvency Agreement, is necessary that the debtor signs an irrevocable Section 188 Authority. Signing the authority is an act of bankruptcy which means that if the PIA is not accepted or accepted and then it fails, creditors will be able to rely upon the Section 188 Authority in petitioning for bankruptcy.

Yes.

The Controlling Trustee will prepare a report , call a meeting by contacting creditors directly and by advertising the meeting in a national daily newspaper and a regional newspaper in the location in which the debtor resides.

Credit reporting agencies will record a PIA for 7 years however, as a PIA is recorded on the National Personal Insolvency index - a permanent public record - it is possible the decision to enter into a PIA may affect you for an extended period of time.

If your creditors agree to the Personal Insolvency Agreement, you usually will not have to sell your house - but you may need to release some equity from the property to encourage the creditors to accept the proposal.

If you choose to keep your house, the regular mortgage payments must be maintained however, your house mortgage - being a secured debt - stands outside of the PIA.

Remember - if you were made bankrupt, the Trustee in bankruptcy would need to take steps to sell the equity in your property - to a spouse or a third party.