Frequently Asked Questions
Personal Insolvency Agreements: The Facts
Firstly, we would like to welcome you to our blog.
Our aim is to provide you with information that is easy to understand and to assist you to navigate your financial circumstances.
A Personal Insolvency Agreement is an arrangement under the Bankruptcy Act to settle most of the debts which you cannot pay by either a payment arrangement or lump sum payment.
You can propose a PIA without regard to the amount you owe, the value of your assets or how much you earn.
A PIA involves you appointing a Controlling Trustee, putting your offer to your creditors (your offer must give creditors a better result than bankruptcy) attending a meeting of your creditors and potentially negotiating with your creditors for them to accept a PIA as full and final payment for the monies you owe. If the meeting of creditors accepts your offer, all your creditors are bound by the PIA.
You are not released from your debts till you have fully complied with the terms of your PIA.
Our ‘heads up’ - proposing a PIA can be dangerous as you lose control of how you will resolve your financial problems. You place yourself in the position where your creditors can have control on how your financial problems are resolved. It is rare that we recommend a PIA, for the reasons detailed in our answer below.
Personal Insolvency Agreements: facts and important things for you to know.
A Personal Insolvency Agreement (PIA) is provided by Part 10 of the Bankruptcy Act 1966 and is an agreement you can propose to your creditors for their consideration as a solution for your overwhelming debt. A PIA is an alternative solution to bankruptcy. In this blog we discuss PIA’s and the risks you need to be across before considering a PIA as a potential solution for your financial circumstances.
To be eligible to propose a PIA you must be unable to pay your debts when they fall due and meet the following criteria;
- Be personally present or ordinarily resident in Australia, or
- Have a dwelling house or place of business in Australia, or
- Be carrying on business in Australia, or
- Be a member of a firm or partnership carrying on business in Australia.
To propose a PIA there are no limits or requirements in regard to your income, the total amount you owe or the value of your assets
To commence a PIA it is first necessary to appoint a Controlling Trustee. A Controlling Trustee must be a Registered Trustee or Solicitor or the Official Trustee (AFSA).
When you appoint a Controlling Trustee, your property becomes subject to the control of the Controlling Trustee and will remain in the Controlling Trustee’s control till one of the following happens;
- Creditors resolve at a meeting of creditors that your property ceases to be controlled by your Controlling Trustee,
- A PIA is entered into,
- If the meeting of creditors does not approve a PIA and does not resolve that your property ceases to be controlled by your Controlling Trustee, then your property will remain under the control of the Controlling Trustee for four months from when you appointed the Controlling Trustee.
- The Court releases your property from control by the Controlling Trustee,
- You become bankrupt,
- You die
QUICK TIP: when you appoint a Controlling Trustee to propose a PIA, you no longer have control of your assets and your creditors will determine your fate.
To commence the process to propose a PIA, the following is required by you:
- You must appoint a Controlling Trustee; and
- Provide the Controlling Trustee with your Bankruptcy Form (previously called Statement of Affairs); and
- Provide the Controlling Trustee with your proposal that you wish to make to your creditors (a draft Personal Insolvency Agreement)
The Controlling Trustee will convene a meeting of your creditors within 25 days of being appointed unless appointed in December when the meeting is to be convened within 30 days from appointment, for your creditors to vote on your proposal.
The Controlling Trustee takes control of your property and investigates your financial affairs and your proposal to your creditors. The Controlling Trustee reports to creditors on his findings and whether the proposal provides creditors with a better return to than they would receive if you were to become bankrupt. Creditors are given the Controlling Trustees opinion on the merit of your offer.
QUICK TIP: do not propose an offer to creditors that does not have merit, as you will have the cost of the Controlling Trustee, lose control of your assets, and have the Controlling Trustee recommending to creditors that they do not accept the offer.
Quick TIp: the length of time for the PIA that you propose is not confined; you can propose any amount of time (years) in line with the proposal you wish to make.
QUICK TIP: it is possible for you to propose a PIA that involves you retaining some assets. However, the information regarding these assets must be included in your proposal for the PIA.
If you have any queries on this, give us a call on 1300 794 492 to discuss your circumstances, or email your query to us at firstname.lastname@example.org
What debts does a PIA cover?
A PIA covers most debts including unsecured debts such as credit cards and personal loans and shortfall on secured debt. An example of shortfall on secured debt is if a financed car is sold and the sale proceeds are insufficient to payout the loan, then the shortfall amount can be included in your PIA
QUICK TIP: if you enter into a PIA and elect to continue the monthly payments on your mortgage, the bank still has the right to repossess the secured asset if you default on the terms of the bank’s mortgage.
QUICK TIP: a PIA must specify that you are released from your debts for you to obtain the protection from creditors you are looking for.
What are the risks?
It is important for you to be aware that there are serious risks associated with proposing a PIA.
1/ you need to know that proposing a PIA is an ‘act of bankruptcy’. This means that if a PIA is not accepted by your creditors, a creditor can approach the Court to force you into bankruptcy and if you become bankrupt within 6 months, your bankruptcy will be deemed to have commenced when you appointed the Controlling Trustee.
2/ your creditors must agree at a meeting of creditors to enter into the PIA that you propose. For creditors to agree to your proposal the vote requires a majority in number and 75% in value of your creditors who attend the meeting of creditors.
3/ by proposing a PIA your creditors are aware that you do not wish to file for bankruptcy. From our experience creditors will negotiate for a better offer at the meeting, knowing they are in a strong position. Our experience is that often people become overwhelmed and in the heat of the moment agree to pay more than they can afford.
4/ if creditors reject your proposal when the meeting of creditors votes, you cannot appoint another Controlling Trustee to propose an alternative PIA for 6 months.
5/ if your creditors vote against your proposal for a PIA but do not do not vote to release your property from the control of the Controlling Trustee, your property will remain in the Controlling Trustee’s control for four months from when you appointed the Controlling Trustee. Some creditors may not vote to release your property so as it remains in the Controlling Trustee’s control while they make application to the Court for you to be made bankrupt.
6/ The PIA must specify that you are released from the debts caught by your PIA once you have complied with the requirements of the PIA, to ensure the PIA provides the solution you are looking for.
7/ if you are unable to comply with the terms of the PIA and the PIA is terminated, you will be returned to where you are now and the PIA will be have been a waste of time. Further, those creditors entitled to charge you interest will be able to add the interest debt that was not charged while the PIA was in existence.
What are the consequences?
It is important for you to be aware of the consequences of proposing a PIA.
1/ when you appoint a Controlling Trustee it is recorded on your credit record and the National Personal Insolvency Index (NPII).
2/ if you enter into a PIA it is recorded on your credit record and the National Personal Insolvency Index (NPII).
3/ you are not able to deal with your property whilst it is under the control of your Controlling Trustee.
4/ you cannot be a director of a company or trustee of Self-Managed Super Fund whilst subject to a PIA.
5/ if your offer is rejected at the meeting of creditors, all of your creditors are advised of the outcome.
6/ you will be required to pay the fees of the Controlling Trustee and if a PIA is entered into, the fees of the Trustee of the PIA.
7/ you are not released from your debts till you have fully complied with your PIA. Also the PIA must provide that you will be released from your debts.
8/ you must attend the meeting of your creditors unless excused by Controlling Trustee.
Is a PIA right for me?
Everybody’s circumstances are different. While a PIA may seem like an attractive alternative to bankruptcy, there are serious risks and consequences associated with it.
It is our opinion that a PIA should only be considered in exceptional circumstances due to it being more expensive than bankruptcy and there are significant risks associated with proposing a PIA. There is the potential for a PIA proposal to backfire. Before you appoint a Controlling Trustee, we highly recommend that you give us a call on
1300 794 492 to discuss your circumstances, PIA’s, and your other options for removal of your overwhelming debt.
If you would like to talk about your circumstances or require more information about PIA’s or bankruptcy, we invite you to give us a call on 1300 794 492 or email email@example.com
For information on bankruptcy and how it works we recommend our article: What is Bankruptcy? How Does it Work? Which can be accessed here.
For information on a Part 4 Scheme we recommend our article: What is a Part 4 Scheme? How Does it Work? Which can be accessed here.
For information on the National Personal Insolvency Index (NPII) we recommend our article: National Personal Insolvency Index (NPII) – What is it? Which can be accessed here.