Personal Insolvency

An individual is deemed as being insolvent when they are unable to pay back their significant debts as and when they fall due and have been unable to do so for quite some time.

In other words, they simply cannot raise enough funds to pay back their debts. It is only one of many debt relief solutions available to you.

A Personal Insolvency Agreement (PIA), also called a Part 10 or Part X Agreement, is a legally binding agreement between you and your creditors in which you come to an agreement on how you will pay your debts. In Australia, PIAs are regulated by the Bankruptcy Act and are supervised by a Registered Trustee. A PIA (Part 10 Agreement) is only considered if a Part 9 Debt Agreement is not suitable because your assets and liabilities are too big.

The payment term (or time period) will depend on your agreement and usually ends when the final payment is made. It is often agreed that some of your debt will be written off as part of the agreement.

A PIA only covers your unsecured debts such as personal loans, credit card debts, tax debts, bank overdrafts, and more. It does not cover secured debts such as your house and car.

While both Part 9 Debt Agreements and Part 10 Debt Agreements (Personal Insolvency) are a step before filing for Bankruptcy, and both deal with significant debt, their eligibility, terms and consequences are different.

In a Part 9 Debt Agreement (a Debt Agreement), a legally binding agreement is negotiated between you and your creditors by a Registered Debt Agreement Administrator. A Debt Agreement usually lasts around three to five years and you agree to pay a percentage of your combined unsecured debt via your Debt Administrator.

In a Part 10 Debt Agreement (Personal Insolvency Agreement), a legally binding agreement is negotiated between you and your creditors by a Registered Trustee. In this instance, your Registered Trustee takes control of your property and offers to pay all or part of your debts back in an instalment or lump sum. The agreement length will depend on the agreed payment terms. It usually ends once the final payment has been made to your creditors. Although it is different from filing for Bankruptcy and has less severe consequences, a PIA is considered an act of Bankruptcy and is registered on the National Personal Insolvency Index (NPII).

The best way to identify is a Personal Insolvency Agreement is right for you is to assess all the avenues of debt relief and to identify which suit your personal circumstances best.

A Personal Insolvency Agreement (PIA) is suitable if you have exhausted all other avenues of debt solutions, are not eligible for a Debt Agreement and don’t want to file for Bankruptcy. This means your debts, income or assets are above the threshold limits set for Debt Agreements. In other words:

• Your unsecured debts are greater than $114,478.00
• Your income is greater than $85,858.50.

Figures have been taken from the Australian Financial and Security Authority (AFSA, January 2019)

PIAs don’t have any upper limits on income earned or debt levels.

To be eligible for a Personal Insolvency Agreement, you must meet the following criteria:

• You are considered insolvent, in other words, you cannot pay your debts on their due dates
• You are living in Australia, are present in Australia or have a business/residential connection with Australia
• Haven’t proposed a PIA in the last six months.

The benefits of a Part 10 Agreement (or Personal Insolvency Agreement) are:

• You avoid going to into Bankruptcy.
• You have fewer restrictions than Bankruptcy such as being able to continue on in certain types of employment.
• Your creditors have to leave you alone while they consider your Personal Insolvency Agreement Proposal
• Your debts are dealt with in a manageable and orderly manner.

A Personal Insolvency Agreement (PIA) comes with the following serious consequences, which you need to understand before undertaking one.

• A PIA is seen as an act of Bankruptcy. This means that if you default on the agreement, your creditors can apply to court to make you Bankrupt.
• The details of the Agreement will be listed on your credit file for five years or more, making it difficult to obtain credit or buy a home.
• Your name will be publicly and permanently listed on the National Personal Insolvency Index (NPII).
• You will need the consent of your controlling Trustee to deal with your house or car.
• You won’t be able to act as a Director of a Corporation until the PIA is complete.

A Personal Insolvency Agreement is only one of many debt solutions available to you should you find yourself deep in debt. You should seek free financial advice to help you assess your current financial predicament and to investigate your options. Debt Negotiators is here to help. We are passionate about helping you find a path to financial freedom and to teach you how to maintain that freedom by changing your spending habits. We’ll start with a free debt assessment, which helps us identify your current situation and which of the alternative debt relief options would be suitable for your individual situation:

• Debt Consolidation
• Home Loan Refinancing
• Informal Agreements
• Debt Agreements
• And as a last resort, Bankruptcy.

Yes, a Personal Insolvency Agreement (PIA) will hurt your credit rating while the agreement is in place. Your PIA will remain on your credit file for a period of five years or more until your agreement is completed. During this time you will struggle to apply for credit, however, this may not be a bad thing as should first regain control of your current debts before adding more to your burden.

A Personal Insolvency Agreement will remain on your credit record for a period of five years, or more if it takes longer to complete the agreement.

The National Insolvency Index (NPII) is a public index of all insolvency administrations in Australia. The index can be accessed for a fee by anyone. If you enter into a Personal Insolvency Agreement, your details will be placed on the NPII permanently.

A Part 10 Debt or Personal Insolvency Agreement (PIA) will not release you from all types of debts. A PIA will release you from certain unsecured debts once the agreement is successfully completed. An unsecured debt is a debt that isn’t tied to an asset such as a house, car or hire purchase. Examples of unsecured debts are:

• Store and credit card debts
• Payday or personal loans
• Utility bills such as gas, water, lights and telephone or internet
• Unpaid rent
• Overdrawn bank accounts
• Medical, accounting or legal fees.

You will still be pursued for payment if:

• the debt was incurred by fraud
• the debt is under a maintenance order or agreement
• you have a HELP-HECS debt
• you have a court-ordered fine.

To be released from your debts properly, make sure your PIA includes a release clause. If it doesn’t, your creditors may still be able to pursue you for any debt owing after the agreement has ended.

You can include joint debts in the agreement, however, the person who shares the debt with you will still be pursued for their share of the debt.

If you have a tax debt with the Australian Taxation Office (ATO), it can be added to your PIA. However, any refunds that you receive may be withheld by the ATO.

Be aware that if your debt relates to rent or utilities, your creditors are able to ask you to change suppliers (for utilities) or in the case of a rent debt, your landlord can ask you to move out.

The time period of a Personal Insolvency Agreement is completely dependant on the agreement negotiated between you and your creditors. It usually ends when the final payment has been made. In most cases, a period of three to five years is negotiated, however, this can be longer.

In order to apply for a Personal Insolvency Agreement (PIA), you will need to appoint a controlling trustee who will:

• investigate your financial affairs
• take control of your assets such as your car and house
• assist you to propose an offer to your creditors
• offer your creditors with some options
• prepare the proposed agreement and send the proposal to your creditors to vote on it
• arrange the meeting, within 25 to 30 days of sending the proposal, in which the creditors will vote on the proposal.

In order for the Personal Insolvency Agreement Proposal to be approved, a special resolution must take place. This means that the majority of the creditors, and 75% of the dollar value of the debts included in the proposal, must agree to it. Once approved, the PIA is binding for all creditors included, regardless of whether they voted yes or no.

You will be responsible for making the agreed repayments to your Trustee for the term of the agreement in order to be released from your provable debts. SHould you default on payments, your creditors can petition the courts to make you bankrupt.

There is no guarantee that your creditors will accept your proposal. They have a right to reject it if they so choose. It is important that you disclose all your financial details.

There is a range of fees involved in the preparation, lodgement, and management of a Personal Insolvency Agreement. Speak to your potential trustees about their fees before selecting one.