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Posted by Revive Financial on Jun 25, 2024 3:27:24 PM

A Part X (10) Personal Insolvency Agreement (PIA) is a formal arrangement between an individual and their creditors to settle debts without going through bankruptcy. It's designed for people who are facing financial difficulties and are unable to meet their debt obligations but want to avoid the more severe consequences of bankruptcy.

A PIA allows debtors to put forward a repayment plan with their creditors, which may involve paying off a portion of the debts over time, making lump-sum payments, or selling assets to satisfy the debts. The agreement is legally binding and requires approval from a majority of creditors in number and at least 75% in value.

Eligibility for a PIA

To be eligible for a PIA, certain criteria must be met to ensure that this option is appropriate for your financial situation. Here's what you need to know:

Australian Connection - You must be present in Australia or have a connection to Australia.

Experiencing Financial Hardship - You must be facing significant financial difficulties, meaning you are unable to pay your debts as they become due. This indicates that a structured repayment plan is necessary to manage your obligations.

No Recent PIA - You have not entered into another PIA within the last six months. This rule helps ensure that a PIA is used as a serious, considered solution to financial problems.

Debt, Income and Asset Flexibility - Unlike some other insolvency options, there are no strict limits on the amount of debt, income, or assets to qualify for a PIA. This flexibility makes a PIA accessible to a broader range of individuals in varying financial circumstances.

The Process of Setting Up a PIA

Once you’ve filled out the appropriate AFSA PIA forms, it works as follows:

Step 1: You Appoint a Controlling Trustee and Give Them a Draft of Your PIA and a Statement of Affairs

Your draft PIA details the proposal for settling your debts. Once the controlling trustee signs the authority form, they take control of managing the process.

The controlling trustee must file the authority form and your completed statement of affairs form with the Official Receiver* within two days of signing consent. A fee is payable at this point. The Official Receiver then extensively checks your eligibility for the agreement.

* The Official Receiver, part of the Australian Financial Security Authority (AFSA), is responsible for overseeing and ensuring compliance with bankruptcy and insolvency laws.

Step 2: The Trustee Prepares a Report and Organises a Creditors Meeting

The creditors meeting must happen no more than 30 days later. Creditors must be given written notice and sent all relevant documents beforehand, and the meeting must be advertised on the AFSA website (a fee is payable) no later than 10 days before it’s due to take place.

A report will be sent to your creditors outlining the benefits of your proposal in comparison to an outcome that may be likely in a bankruptcy scenario.

At the meeting, your creditors vote to decide if they accept what you propose. To be accepted, a majority in number and at least 75% of the debt value of the voting creditors must be in favour.

Step 3: A Trustee Administers the Terms of Your Personal Insolvency

A registered trustee is responsible for ensuring you comply with your PIA's terms. The PIA must be in the form of a deed and be executed within 21 days from the day the special resolution requiring you to execute a PIA was passed.

Relevant documents must then be filed with the Official Receiver. Once the PIA is completed, the trustee must lodge a notice of completion.

Effect on Assets

One of the significant aspects of a PIA is its potential impact on your assets. Here's what you need to know:

Asset Retention - A PIA can provide more flexibility compared to bankruptcy, allowing you to retain certain assets, such as your home or car, if the terms of the agreement permit. This can provide much-needed stability and continuity during financial hardship.

Negotiated Terms - The agreement's terms are negotiated with your creditors and can be tailored to your specific situation. This means you might be able to keep essential assets that would otherwise be at risk in a bankruptcy scenario.

Asset Sale - The PIA may include the sale of assets to satisfy part of the debt. The proceeds from these sales will be used to repay creditors according to the agreed terms.

Prior transactions – If you sold or transferred assets previously or made some payments to creditors prior to the agreement, these will not be recovered.

Legal Protection - Once the PIA is in place, your assets are protected from further legal actions by creditors, giving you peace of mind and allowing you to focus on meeting the terms of the agreement.


Creditor Impact

Creditors play a significant role in the success of a PIA, as their approval is crucial for the agreement to take effect. A PIA offers a negotiated settlement which can often lead to better outcomes for creditors compared to bankruptcy. Since PIAs typically result in higher repayment rates, creditors may recover a larger portion of the debt owed.

The process involves the creditors voting on the proposal, requiring a majority in number and at least 75% of the debt value to approve the agreement. This structured payment plan provides creditors with a clear timeline for debt repayment, reducing the uncertainty and complexity of recovering unpaid debts through legal actions.

Pros and Cons of a PIA


One of the most significant benefits of a PIA is the potential to retain important assets, such as your home or car, which might otherwise be sold off in bankruptcy. PIAs offer flexibility in structuring repayments to fit your financial situation. This can include lump-sum payments, periodic installments, or even the sale of some assets.

Asset Retention - PIAs allow you to keep essential assets that might be liquidated in bankruptcy, providing stability and continuity in your life.

Flexible Repayment Terms - The repayment plans can be customised to match your financial capabilities, including options for lump-sum payments or periodic installments.

Reduced Stigma - Opting for a PIA can be seen as a proactive step to manage debt, carrying less social and professional stigma compared to bankruptcy.

Employment Stability - Many individuals face fewer restrictions on employment and are not required to make any contributions from their income and may continue to operate a business, allowing them to continue their careers with minimal disruption.

Control - Debtors have a greater say in their financial arrangements by negotiating repayment terms, offering more control compared to the rigid processes of bankruptcy.

Restrictions – Unlike Bankruptcy, there are no statutory restrictions and you can travel overseas without seeking the trustee’s approval.


However, there are also drawbacks to consider. The process of setting up and managing a PIA can be expensive due to trustee fees and other administrative costs. Entering into a PIA will negatively affect your credit rating, making it more challenging to obtain credit in the future.

Cost - The setup and management of a PIA can incur significant expenses due to trustee fees and administrative costs.

Credit Rating Impact - Like bankruptcy, a PIA will adversely affect your credit score, which can hinder future credit opportunities.

Credit Approval Needed - The success of a PIA depends on the approval of creditors. If the majority do not agree to the terms, the PIA cannot proceed.

Commitment - Adhering strictly to the repayment plan is crucial, and failure to do so can result in the agreement being terminated.

Public Record - Your name is permanently recorded on the National Personal Insolvency Index (NPII), making this information publicly accessible.

Professional Restrictions - Certain professions, such as company directors, real estate agents, lawyers, accountants, and financial advisors, may still face restrictions. For instance, company directors cannot manage a company without court permission, and real estate agents might face limitations similar to those in bankruptcy.

Impact on Your Credit Rating

Entering into a PIA could have a significant impact on your credit rating, depending on your current financial situation. Here’s how it can affect you:

Credit File Notation - The fact that you have entered into a PIA will be noted on your credit file for up to five years from the date the agreement is accepted, or until the agreement ends, whichever is longer. This notation informs potential lenders of your insolvency history.

National Personal Insolvency Index (NPII) - Your PIA will also be permanently listed on the National Personal Insolvency Index, a public record accessible by anyone conducting a background check. This can impact your ability to secure credit and affect your professional reputation.

Potential Adverse Effect on Credit Score - If your credit score is already very low, the additional impact of a PIA might be minimal compared to someone with a higher score. In many cases, a very low credit score is already limiting your ability to secure new credit, so the potential further reduction might not make a significant difference.

Future Borrowing Challenges - With a PIA notation on your credit file, lenders may view you as a higher risk. This can lead to higher interest rates or stricter lending terms if you do qualify for credit.

It's important to weigh these potential impacts against your current credit situation. For those with a very low credit score, the structured debt management of a PIA might offer a more practical path to financial recovery. By addressing your debts through a PIA, you may be able to improve your overall financial stability, even if it means a temporary further drop in your already low credit score.

To help you make the right choice, we recommend speaking with one of our experts. We can help you weigh up whether a personal insolvency agreement is worthwhile and affordable for your situation, as well as advise you on the next steps in either case.

Keen to weigh up the options to manage your debts with a professional? Contact us today.

Topics: Personal Insolvency, Debt Agreements, Personal Debt, Part 10, Part X

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