Personal Insolvency Agreement (PIA)
A Personal Insolvency Agreement (PIA) is a flexible way for a debtor to come to an arrangement with creditors to settle their debts without going bankrupt.
The debtor appoints a Controlling Trustee to take control of their property and put forward a proposal to creditors. The Controlling Trustee will examine the proposal, make enquiries into the debtor’s financial affairs and report to creditors.
A meeting of creditors will generally be held within 25 business days of the Controlling Trustee’s appointment and creditors will consider and vote on the proposal. For the proposal to be accepted a majority of creditors and 75% of the dollar value of the voting creditors need to vote for the proposal.
If the proposal is accepted, creditors are bound by the terms of the Personal Insolvency Agreement. If the proposal is rejected creditors will either vote in favour of the debtor being made bankrupt or allow the debtor to decide how they solve their financial difficulties.
Bankruptcy by Debtor Petition (voluntary)
A person can apply to make themselves bankrupt and there is no minimum amount which needs to be owed before doing so. The application is dealt with by the Australian Financial Security Authority, a Commonwealth Government department. The application is generally dealt with within 24- 48 hours.
Once the bankruptcy is processed, a Trustee will realise any divisible assets owned by the bankrupt and conduct investigations into the bankrupt’s affairs. Such investigations typically include assessing the bankrupt’s potential liability to make income contributions during the bankruptcy period.
The Trustee notifies creditors of the bankruptcy shortly after being appointed and it is their role to keep creditors informed as to dividend prospects.
Bankruptcy generally lasts three years, however that period can be reduced or extended.
As part of an application for bankruptcy, a debtor must be satisfied they understand the implications and obligations of bankruptcy.
Bankruptcy by Sequestration Order (court order; involuntary)
A creditor owed $5,000 or more can apply to court to have a person made bankrupt. The approved cost of the application are a priority to be reimbursed from any funds subsequently received by the Trustee of the bankrupt estate.
The actions taken by a Trustee and the implications and obligations of bankruptcy are essentially the same irrespective of whether the bankruptcy is voluntarily or involuntarily initiated.
Creditors are recommended to seek independent legal advice about the process to apply for a debtor to be made a bankrupt.
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