Do you have mounting debt and repayments that seem insurmountable?
Money hardships can cast a dark cloud over our lives, leaving us feeling overwhelmed and uncertain about the future.
The good news is you always have options out there to help you get out of a financial black hole, no matter how deep it seems.
If you’re struggling with debt and facing insolvency, a Part 10 personal insolvency agreement or PIA is one of the lifelines available to help you take back control.
To help you decide whether a Part 10 agreement is right for you, let’s look at what it involves and the benefits and consequences of entering one.
What is a Personal Insolvency Agreement (Part X Arrangement)?
A personal insolvency agreement, under Part 10 of the Bankruptcy Act, is a legally binding agreement between you (the debtor) and your creditors to settle your debts. It’s an alternative option to bankruptcy for people facing insolvency.
Terms options set out in a PIA proposal may include:
- A lump sum payment to creditors of your own money or third parties (friends, family)
- Assigning property to be sold with the proceeds distributed to creditors
- Periodic payments distributed to your creditors
The length of personal insolvency agreements depends on what terms you negotiate with your trustee and creditors.
What’s the Process Involved for Entering 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
Your draft PIA details the proposal for settling your debts. Once the registered trustee signs the authority form, they take control of your debts.
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.
Step 2: The Trustee Prepares a Report and Organises a Creditors Meeting
This 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 no later than 10 days before it’s due to take place.
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
Your official 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.
Now you know what personal insolvency agreements involve, let’s look at the benefits.
What are the Benefits of a Part 10 Debt Agreement?
Here's why opting for a PIA can be a good move:
- It’s a flexible way to settle your unsecured debts and wipe your financial slate clean. These unsecured debts include:
- Credit and store cards
- Unsecured personal loans and payday loans
- Gas, electricity, phone and internet bills
- Overdrawn bank accounts and unpaid rent
- Medical, legal and accounting fees
- You get to set your own terms for repayment that best suit your situation
- It offers a better return to creditors than bankruptcy
- Unlike Part 9 debt agreements, there are no debt, asset or income limits to be eligible for a personal insolvency agreement
- You get to keep your most important assets, such as your house and car, if the terms of your agreement allow for it
- You avoid bankruptcy and its consequences
While PIAs offer many pros if you’re financially struggling, there are also some undesirable consequences it pays to be aware of.
What are the Consequences of a Personal Insolvency Agreement?
Here are some of the main cons of PIAs:
- Appointing a controlling trustee is an act of bankruptcy. This means a creditor can apply to the court to make you bankrupt if your PIA fails
- Your details will permanently appear on the National Personal Insolvency Index (NPII), which is publicly available
- The details will appear on your credit file for 5 years or longer. This will affect your credit rating and ability to access further finance
- You may not be able to deal with your property (e.g. your house, car) without the consent of your controlling trustee. You may still be able to run your business if the terms of your PIA allow
- You can’t be a company director during the duration of your personal insolvency agreement.
- Generally, the cost of setting up a PIA is a lot more than setting up a Part 9 debt agreement because of the intensive enquiries involved
- You may not be released from all your debts, including HELP debts, debts incurred by fraud, debts under a maintenance agreement or order, and court-ordered fines
Weighing up if it’s Worth it
Personal insolvency agreements can be a great way to wipe away unmanageable debt if you’re facing insolvency. However, it’s important that you weigh up your options.
If your debt levels are low and your current situation is fairly uncomplicated, a Part 9 debt agreement is less costly and may be a better way to go.
If your debt is overwhelming and your circumstances mean you’re unable to pay it back within a reasonable timeframe, you might want to declare bankruptcy.
To help you decide whether a Part 10 personal insolvency agreement is the best option for you, ASFA recommends seeking advice from a financial specialist.
An independent party with the right knowledge is well-placed to help you make the most financially savvy decision.
If you’re experiencing financial difficulties and are considering a personal insolvency agreement, get in touch with our team of debt solution specialists today on 1800 534 534 for professional, non-judgemental support and guidance.