Personal Insolvency

Criteria for personal insolvency agreements (PIA )

To be eligible for a PIA, you must be insolvent but you must still remain outside the qualification criteria of a Part 9 Debt Agreement.

In order to be applicable for a Part 10 personal insolvency agreement you must meet the following criteria:

  • Must not have proposed another Personal Insolvency Agreement, Part 9 debt agreement or bankruptcy in the 6 months prior to your application of a personal insolvency agreement.
  • You must have unsecured debts that are in excess of $95,386.20, if you’re debts are less than this then you should be looking into a Part 9 debt agreement rather than a Personal Insolvency agreement.
  • You must have equity in assets in excess of $95,386.20, this would be in property, cars, etc. If you do not have assets to this value, then a personal insolvency agreement is not appropriate for you, and again you should consider a Part 9 debt agreement instead.
  • You must be either self-employed or working for someone else. If you are unemployed then you are not eligible for a personal insolvency agreement.
  • Your regular annual income before must be more than $71,539.65, but may not exceed $96,731. If you earn less than this the threshold for a part 9 debt agreement is $70,898.10, as long as your annual income is below this then you are eligible for the part 9 debt agreement.
  • You need to be an Australian Resident or have a business connection with Australia.
  • The majority of creditors and those lenders who hold at least 75% of your overall debts must be in agreement in order to accept your insolvency proposal.
  • If any of the above applies to your situation, you may be eligible for a Personal Insolvency Agreement. If not then either a part 9 debt agreement or bankruptcy may be applicable to you.


Risks Associated with a PIA

There are a number of risks that must be understood when considering whether or not to proceed with a Personal Insolvency Agreement. The first you should do is to speak to your major creditors before you start the process and try to ascertain whether they are likely to accept a Personal insolvency agreement – if they all decline, then bankruptcy may be your only remaining option.

To commence with a Personal insolvency agreement you will be asked to sign a 188 Authority. You must understand that in signing the 188 Authority is in itself an Act of Bankruptcy, and is a decision that should not be taken lightly.

You may sign the 188 Authority, only to then have your creditors reject your proposal of a personal insolvency agreement. If they reject your proposal they may then take advantage of the fact that you’ve signed the 188 authority, and use it to force you into bankruptcy. If this happens then matters are very much outside your control. Your assets will be seized and sold off to pay the outstanding debts to your creditors. This route leaves you with very few choices and little opportunity to get yourself out of the situation. Once declared bankrupt you will find it impossible to get future credit for at least 5 years. This will make it extremely difficult to regain any assets you may have lost as a result of the bankruptcy, such as property.

In order to avoid bankruptcy it is critical that you have a firm acceptance of a PIA. It is therefore crucial that you put forward the best possible proposal, that creditors will be receptive to. However you should be prepared that in the event that your proposal in not accepted, you may need to declare bankruptcy or attempt to negotiate an informal agreement with your creditors in order to avoid such action.

Once you have signed the 188 Authority it is a done deal and cannot be reversed. Therefore you should very carefully weigh your options before making such life altering decisions.

Bankruptcy is much more of a restriction to your life and financial situation, as it leaves you with no control over your finances or assets. You may be required to pay your creditors more under a personal insolvency agreement as compared to bankruptcy. With this in mind it might be of financial benefit to you to declare bankruptcy over entering into a personal insolvency agreement.

For example, if your asset worth is a property worth $120,000 and your debt is $150,000, under a Personal insolvency agreement you would have to pay $2,500 dollars over 5 years to clear the entirety of the debt. Your creditors may write off some of the debt for you if you pay the bulk, but that is what you would pay to clear 100% of the debt owed. In this situation, as long as the creditors are happy with the arrangement and you uphold your end of the deal and maintain the monthly payments, you would keep your $120,000 property.

If you declare bankruptcy then your assets would be seized to pay the debt. Whatever your assets do not cover, you can walk away from, such as is the case with bankruptcy. So your $120,000 property has now paid off your debt. Essentially you are now debt free, but you have lost your property and will be unable to obtain credit for the next 5 years minimum. However, you have essentially only paid $120,000 of your debt. Under your personal insolvency agreement you would have paid the full $150,000.