A personal insolvency agreement (PIA) is an alternative to bankruptcy to deal with your unmanageable debts.
Can I propose a PIA?
You may propose a PIA to your creditors under Part X of the Bankruptcy Act if you:
- Are insolvent (unable to pay your debts as and when they fall due)
- Have not proposed a PIA in the last six months.
Unlike proposing a debt agreement there are no debt, asset or income restrictions for proposing a PIA.
What are the benefits to me if my PIA proposal is accepted?
A PIA is a formal agreement to compromise all of your debts. If your proposal for a PIA is accepted by creditors:
- Your proposal provides for you to pay a set amount (which is often less than your total debts) in a lump sum, from the sale of your assets or by instalments over time, often from income.
- You may retain your assets or continue trading your business.
- All of your provable unsecured debts are included in the PIA, even if not all creditors vote on your proposal.
- Unsecured creditors cannot take action against you to recover their debts.
- You are only required to pay the lump sum, contributions or other amounts you agreed to make under your proposal.
- You avoid most of the restrictions of bankruptcy.
- Subject to complying with the terms of your PIA, you are released from your provable unsecured debts and you are only required to pay the lump-sum amounts, regular instalments or other contributions you agreed to pay under your proposal.
What do I need to be aware of if I propose a PIA?
There are considerations and consequences if you intend to propose a PIA as follows:
- When proposing a PIA you should consider what your creditors may accept, what you can afford to contribute and what would happen if your circumstances change. Generally a PIA will provide a better return to your creditors than bankruptcy.
- If you wish to retain your assets which are subject to security agreements eg. your car or home, you need to maintain payments under these agreements. If you do not the secured creditor may seize and sell the assets.
- If you enter into a debt agreement and you owe a debt jointly with another person, or someone has guaranteed your debt, they will still be liable and a creditor may pursue them for the debt.
- Debts for court-imposed fines and penalties, maintenance agreements and HELP are not included in your debt agreement. You will still remain liable for these debts.
- You are liable for all debts you incur after you enter a PIA.
- You will be subject to certain restrictions if applying for credit or trading a business.
- The cost of a PIA may be more than the full amount of the debts you owe.
- The terms of your PIA ultimately depend on what your creditors are prepared to accept.
- Appointing a controlling trustee in order to propose a PIA is an act of bankruptcy which, if your proposal is not accepted, creditors may use to bankrupt you.
- It will be permanently record on the National Personal Insolvency Index if you appoint a controlling trustee in order to propose a PIA and it will be recorded for 5 years on your credit report.
- You are disqualified from managing a corporation during the term of your PIA.
- The controlling trustee is required to conduct a detailed investigation into your circumstances and financial position and report their findings to creditors. There can therefore be significant costs associated with this course of action.
What’s the process?
In order to propose a PIA to your creditors you must appoint a controlling trustee who will review your financial position and circumstances and report their findings to your creditors. The controlling trusteeâs report will include a recommendation as to whether or not creditors should accept your PIA proposal.
The controlling trustee will call a meeting of your creditors which will be held within 25 business days of the controlling trustees appointment. Creditors will be asked to vote on the acceptance of your proposal at the meeting. For the proposal to be accepted, you will require the majority in number and at least 75% of the dollar value of creditors voting, to vote in favour of the proposal.
If the PIA proposal is accepted by creditors the PIA will be binding on all unsecured creditors, whether or not they voted.
Once the PIA is in place you will be required to comply with its terms. When sufficient funds are contributed to your PIA, a dividend will be distributed to your creditors proportionally in respect of their debts.
A controlling trustee will seek up-front payment of the costs for their appointment. The costs of the trustee of the PIA will be paid from the set amount of contributions you make to your PIA.
If you believe putting forward a proposal for a PIA is the right option for you, or you’d like to discuss the alternatives available to regain financial freedom, contact us on 1300 4 CACTUS or complete this short form and we will call you.