An Overview of Personal Insolvency Agreements

Personal insolvency agreements offer a great option through which debtors can avoid bankruptcy. It is a flexible option that you can use in order to come to an agreement with unsecured debtors and offers you plenty of benefits.

What is a Personal Insolvency Agreement?

The Personal Insolvency Agreement or PIA allows you to come to an agreement with your creditors without going bankrupt. They are common amongst those who want to protect certain business interests. Unlike debt agreements which are informal arrangements, the personal insolvency agreement is very formal and must be administered by a registered trustee. Once you satisfy the set requirements or conditions, you will make an offer to your creditors which can take various forms as discussed below.

The Personal Insolvency Agreements or PIAs will be proposed where the individual debt exceeds $120,000. They offer you an opportunity to strike a compromise with your lenders so that you can settle your debts over a duration of time in a way that will suit your current/ongoing capacity to pay. The process of securing the PIAs is generally a bit complex so there is a level of debt for which you can make the proposal must be considerable. Additionally, the PIAs will have to be administered by an Official Trustee or Registered Trustee.

Personal Insolvency Agreements will result in your creditors being paid either in part or in full. It can take the following forms:

  • Lump sum payment for your creditors. The money can come from the debtor or from third parties such as friends and family members.
  • It can also involve asset transfer to the creditors or payments made from the proceeds of sales of the debtor’s assets.
  • An arrangement with the creditors which may include payment deferral.

When Debtors Can Propose a PIA

There are various conditions under which you can propose a personal insolvency agreement. These include the following:

  • The debtor must be insolvent for them to propose a PIA.
  • They must either be in Australia or have a connection with the country.

Consequences for the Debtor

The trustee will basically take over your finances and devise a payment plan for your creditors. It can be risky as you will be committing an “act of bankruptcy” when you appoint a trustee and your creditors could use that to force you into bankruptcy in case your PIA proposal fails.

Once you appoint the trustee, the details will appear in the National Personal Insolvency Index or the NPII permanently. The credit reporting agency will also have this detail in their records for the duration of 5 years. Under some circumstances, they can retain this detail for a longer duration of time. If you succeed in executing the PIA, you will be disqualified from running any corporation until you fully comply with the terms of the PIA.

How PIA Process Works

  • Your trustee submits reports and a proposal to your creditors.
  • A meeting of the creditors is convened
  • The creditors will subsequently consider your PIA proposal
  • The creditors will then vote on whether to accept your PIA proposal
  • For the proposal to succeed, 75% of the dollar amount of your creditors must vote to accept the proposal.
  • If the vote succeeds, this becomes a binding proposal.

When your obligations under the proposal have been satisfied, the personal insolvency agreement will come to an end. You can find more information about the personal insolvency agreements with the Debt Mediators.


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Posted by: Jesse on