How does a Part X Personal Insolvency Agreement Work?

You are in debt, but you are not keen to go for bankruptcy. Part X of the Bankruptcy Act provides you a way out. This is called the Personal Insolvency Agreement (PIA).

PIA is a process whereby you make a proposal to your creditors about your repayment plan of their debts. If they accept the same at a formal meeting, then you can avert declaring yourself bankrupt. PIA is a mutually acceptable compromise solution available to you and your creditors without going to the court.

Having accepted your proposal, all your creditors become bound by it, for their provable unsecured debts. These would include among others your credit card outstanding balances, personal loans, store cards, etc. Secured creditors are not covered under this arrangement.

ITSA or the private registered trustees administer Part X Personal Insolvency Agreements.

How does the Part X Agreement work?

Part X Agreement involves the preparation of the Statement of Affairs covering your detailed financial position and your proposal as to how best you will clear your debts within the constraints of your difficult financial condition. It would prima facie specify

what assets and income you have available, which can be used to pay off the debts

how these will be utilized towards paying off the creditors

up to what amounts of the provable debts will be cleared and what balance amount you want to be released from

any particular order in which the debts will be cleared or will it be pro-rata amongst all creditors

any other conditions or provisions that you may want to include in the PIA

the trustee who would administer the Part X Agreement

This proposal is then discussed at a meeting of your creditors and the put to vote for acceptance. The trustee would be issuing an advertisement in two newspapers - a national daily and a local daily, where you reside – giving details of the proposed meeting. This meeting is generally convened within 25 days of the trustee agreeing to act for you and signing the section 188 authority. You need not pay any monies to the unsecured creditors during this 25-day period.

The proposal becomes effective and binding on all creditors provided at least 75% of your creditors in dollar terms, vote for your proposal. If your debt proposal is not accepted, then you may have to consider bankruptcy.

The costs involved in setting up and administering a Part X arrangement are relatively higher. As such the income or assets available to your creditors under your proposed debt agreement have to be of significant level for a Part X to be cost effective.

Do I have to pay each creditor separately?

An important and useful feature of a debt agreement is that it consolidates all your unsecured debts. Once accepted by your creditors, you become liable to make only a single payment to your trustee.

It is the trustee who then distributes this amount amongst your various creditors as per the agreement. The trustee would be deducting his fees from your contribution. This also is laid down in the agreement, so that your creditors are also aware of it.

Why should I propose a Part X debt agreement?

Since you cannot repay your debts on time and your creditors are constantly threatening you with a legal action, you have to do something about your problem. The only alternative to a debt agreement is to declare yourself bankrupt.

However, bankruptcy has some serious consequences. You can lose practically all your assets including your house (except a few stipulated in law) and you cannot acquire any new ones during your bankruptcy. You have travel restrictions imposed, you cannot be director of companies; your credit rating is impaired, etc.

A debt agreement gives you an opportunity to retain your assets and live a less restricted life. It gives a chance to put your financial affairs back in order.

Is my credit rating affected?

As per the provisions of the law, your Part X debt agreement gets registered on the National Personal Insolvency Index. The credit-reporting agency, i.e. the Baycorp Advantage, will be using this information and informing your creditors about your Part X Agreement.

This record will be maintained on NPII for 7 years.

While, this does hamper your chances to avail any debt in future, it is a lot better than having been declared insolvent. It shows your intentions were good and that you had to resort to a debt agreement due to some temporary financial difficulties.

A Part X Personal Insolvency Agreement is a fairly involved and formal arrangement between you and your creditors for the settlement of their debts. The costs involved in set-up and management of a Part X are also high. But, they may still be a better alternative to bankruptcy, which comes with serious restriction, including loss of assets.

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We recommend you visit one the following providers to help you reduce your debts

• Fox Symes - Have assisted over 30,000 Australians reduce their debts
• Debt Relief - Offer a free debt analysis for Australians
• Mortgage Relief - Can assist you consolidate unsecured debts into your mortgage and reduce your overall interest rate.