Australian Guide to Personal Insolvency Agreements

What is a Personal Insolvency Agreement under Part X of the Bankruptcy Act?

A Personal Insolvency Agreement, sometime known as a PIA or as a Part X, is a legally binding agreement between a person (so not a company) and their creditors. A PIA is an alternative to bankruptcy. It allows a debtor to enter into an agreement with their creditors to settle their debts without being made bankrupt. In general terms, with a PIA:

• A person appoints a Trustee to take control of the process.
• The aim is to enter a formal agreement with their creditors and to avoid bankruptcy.
• It may involve a single lump sum payment to creditors via the Trustee; an assignment of some assets to the Trustee; periodic payments to the trustee.

Is it that simple – no! There is a lot to consider. Whist you get the advantage of getting a “haircut” from your creditors, there are some consequences which will affect you. A PIA may affect your ability to get credit and you will appear on a public register for some time.

Can a PIA help solve a tax debt I can’t pay?

Yes, in some cases. A PIA is a binding agreement between you and your creditors and so that can include the ATO. In fact, the ATO is very commercial in considering whether to accept a proposal under a Debt Agreement. The ATO likes to assist people that have unmanageable debt.

Does the ATO consider PIAs on their merit?

Yes, the ATO does consider PIA proposals on their merit. However, the ATO will want information from your Trustee so it can properly assess if a proposal is reasonable.

If my personal tax debt arose as a result of a DPN will the ATO consider a PIA?

Yes, the ATO will still consider a PIA proposal for a personal tax debt that arose due to a Director Penalty Notice (DPN).

Does a PIA apply to all of my debts or just the debt to the ATO?

A PIA is proposed to all of your creditors. They all then get to Vote on whether to accept the proposal, or not. If a majority in value votes in favour of the proposal, then the PIA is binding on all creditors, even those that voted No.

What are the eligibility criteria for a PIA?

The eligibility requirements for a Debt Agreement change over time (the numbers slowly increase). As a guide, the criteria are:

• You’re insolvent – that is, you are not able to pay your debts when they are due.
• You haven’t proposed a PIA in the last six months.
• You’re living in Australia.

Can I include secured debts in a PIA?

No. If you have secured debts such as a motor vehicle loan or a home loan, those debts are not included in a Debt Agreement. In practice, this means that if you have a home mortgage or a car loan, and continue to repay them, your assets are not at risk. If you default on those payments, the lender can repossess your assets.

Can I do a PIA myself or do I need help?

No. you can’t do it by yourself. To enter into a PIA , you need to appoint a Trustee in Bankruptcy. The Trustee will run the process for you.

What is the difference between a PIA and a Debt Agreement?

The main difference between a PIA and a Debt Agreement is that a PIA has no income, property or debt limits applicable to debtors who wish to use the process. Debt Agreements have limits, such as a total debt amount of about $133,000. But the flip side is that a PIA is more complicated and te process more rigorous and so the cost of a PIA is generally much higher than that of a Debt Agreement

Can I apply for a loan during my PIA?

Yes, you can apply for a loan whilst in a PIA, but it may be difficult to get approval. You must disclose the PIA to the proposed lender, and that it will make it more difficult to get approval.

If I have to be insolvent to do a PIA, what does that mean?

“Insolvent” is a legal term used to describe a financial state where an individual is unable to meet pay their debts as they become due.

What is the process of a PIA?

The process of a PIA will be run and controlled by your Trustee, so you don’t need to understand all of the details. But for simplicity’s sake it can be broken down into the following phases:

• Appointment of a Trustee: A trustee is appointed to take control of your property and run the process.
• Information Gathering. Your Trustee will ask for information and help you complete the relevant paperwork. They will also provide you with information brochures and documents. The sorts of information you’d need to provide to the
• Trustee include: your current payslips, bank statements, proof of rent or mortgage payments.
• Proposal to Creditors: The trustee makes a proposal to your creditors.
• Voting by Creditors: Your creditors cast their Votes.
• Management of the Agreement: Your Trustee will collect money in accordance with the Agreement and then pay a distribution to your creditors.
• Completion: When the Agreement is complied with, the PIA comes to an end.

What debts can I include in a PIA?

You can include the following types of debts in a PIA:

• Unsecured Debts – which are debts like credit cards, personal loans, and lines of credit.
• Store Cards.
• Some ATO Tax Debts.
• Some Centrelink Debts.
• Joint debts.

Can I include my fines in a PIA?

No. Generally fines cannot be included.

What happens with joint debt?

Joint debts can be included in a PIA, but a creditor still has the right to chase the other party for the debts.

What if someone has guaranteed my debt?

If someone else has guaranteed your debt, they are called a Guarantor. If you enter Debt Agreement, it is still possible for the person owed money to chase the Guarantor for payment.

What is AFSA and what do they do?

The Australian Financial Security Authority (AFSA) is a government department run by the Attorney-General. AFSA manage bankruptcy laws and their operations. AFSA supervises Trustees.

Do all of my creditors have the right to vote?

Yes, all unsecured creditors have the right to vote. Secured creditors can only vote on any unsecured part of their debt – that’s the difference between the amount of the debt owed to them and the value of the assets secured over (such as your house).

Do all of my creditors have to agree to my proposal?

No. A Debt Agreement is approved of a majority in value votes yes – that is, greater than 50% in value. So, if some creditors vote No to the proposal, they are still bound if the majority in value voted yes.

What happens if the PIA proposal is not accepted by creditors?

If the creditors reject a proposed PIA, you’ll then need to assess your options. A creditor who is owed more than $10,000 can make an application to the Court for the Court to make you bankrupt.