Similar to debt agreements, a personal insolvency agreement (PIA), also known as a Part 10, is another legal alternative to bankruptcy. A personal insolvency agreement offers a lot of flexibility to settle your debts, as the terms are mutually decided by the debtor and his creditors.
A personal insolvency agreement is a legally enforceable agreement, but to enter into such an agreement the debtor needs to appoint a controlling trustee. A controlling trustee is a Registered Bankruptcy Trustee (registered with AFSA), who can be appointed by the debtor by signing a 188 Authority.
Post his appointment, all your property comes under the control of your controlling trustee, and it his job to investigate into your financial position, and create a report on the same for your creditors. He will also send an agreement proposal to your creditors on your behalf, which will clearly mention all the terms and conditions as to the repayment of your debts. Creditors holding a minimum 75% of the total debt must accept the agreement, for it to become legally binding.
Other important features of a PIA include:
- Unlike debt agreements, there is no limit on the income, assets or debt to be eligible for PIA.
- Only unsecured and tax debts can form a part of your PIA. For example, debts secured with mortgages cannot form a part of the PIA.
- You are free to retain assets such as your house and your car depending on your agreement with your creditors.
- The length of the PIA will depend on the terms of the agreement with regards to repayment of the debt. This is generally between 3 to 5 years.
- The trustees charge fees for proposing, lodging and managing the PIA, which should be duly considered before going ahead with this option.
To be eligible for PIA:
- One must be insolvent, that is, unable to pay their debts as and when they fall due
- One must be resident in Australia, or have a residential business connection in Australia
- One must have not proposed a PIA in the preceding 6 months
Other consequences of a PIA include:
- The PIA will stay on your credit file for a period of 5 years, and this can affect your credit rating.
- Your name will also appear in the public records under the National Personal Insolvency Index.
- You will become ineligible to apply for credit for goods or services, above a particular amount, without prior disclosure of your status as an undischarged debtor.