Exploring Personal Insolvency Agreements as an Alternative to Bankruptcy

"A personal insolvency agreement, or PIA, is a deal you make with your creditors to avoid going bankrupt. If you are made bankrupt then this lasts for a minimum of three years, whilst a PIA can be an agreement with your creditors which is a lot shorter. 

If you want a simple way to think of it, imagine the voluntary administration process companies go through instead of liquidation. A personal insolvency agreement is similar, except it’s for individuals.”

"The best part about a PIA is its flexibility. You can set it up to last a few months or several years, depending on what works for you and your creditors. It gives you immediate relief from debts and lets you take control of the situation without the long-term restrictions and stigma of bankruptcy. 
On top of this, a PIA shows your creditors that you want to proactively deal with them and repay them as much is financially possible in your circumstances. In effect, it’s a show of good faith and is likely to get creditors a greater return in a shorter timeframe.

Another major advantage of a PIA is that you may be able to protect certain assets, like your home, which you may be at risk of losing in bankruptcy."

In addition, you are not required to pay a portion of your income (income contributions) over the next three years as is generally the case in a bankruptcy (unless this is part of your proposal).
 

"If you're insolvent and an Australian resident, you can apply for a PIA. You need to admit that you're unable to meet your debts and you can’t have entered into another PIA in the last six months. 

It's for individual debtors, sole traders or partners in a partnership.
 

"Setting up a PIA involves several important steps. First, you gather all your financial information, including all assets and creditors that you have.  This helps assess your current financial situation.

Next, it’s crucial to consult with an insolvency expert such as RSM. We can provide insights into what bankruptcy might entail and help formulate a PIA proposal for your creditors that may be better than bankruptcy.

During this stage, we'll evaluate your assets and any available funds, including personal or family resources. This assessment enables us to create a tailored plan that suits your circumstances and provides the most effective resolution."
 

“Entering into a PIA does have some effects on your credit rating and financial future, similar to bankruptcy, but there are some key differences. 

Currently, your details will appear on the National Personal Insolvency Index (NPII) permanently and they will also be listed on your credit file for up to five years, or longer in some cases. 

Additionally, while you're under a PIA, you won't be able to manage a corporation until the terms of the agreement are completed.”
 

“Yes, certain debts like court fines, HECS debts and some child support obligations are excluded from a PIA. Secured creditors, like banks with mortgages, might not be part of the agreement either since they have security over your property.

 But if you keep up with mortgage payments, you can propose to keep your property under the PIA.”

“Creditors get notified once a controlling trustee is appointed. Creditors  receive a detailed report from the controlling trustee along with the proposed PIA. There's a meeting where creditors vote on the proposal.

When making a PIA proposal, if the proposal is one that a controlling trustee will recommend as it will see creditors receive a better return than if the person was made bankrupt, creditors are more likely to vote in favour of the PIA proposal .”

"One downside is the cost. You need to hire an expert and bring in a controlling trustee to manage the process.

Also, when you sign a Section 188 Authority to appoint a controlling trustee, you're admitting insolvency. If creditors reject your PIA proposal, they can use this to push for bankruptcy through the courts. That is why it’s important to liaise with an expert prior to the execution of a Section 188 Authority to ensure the best chances of success."
 

"The key is to explore your options early. Take control of your financial situation and get advice as soon as you can. Knowing your assets, liabilities and overall financial health is crucial.

A PIA is a great alternative to bankruptcy, but you need to act early and get professional advice to see if it's the right fit for you."