A hard fact of life is that financial problems don’t just go away, as if by magic. Unfortunately, a surprising number of people think they can make the problem disappear if they ignore it for long enough. As a result, many people who might have been able to turn things around had they dealt with their deteriorating financial situation are instead faced with some pretty grim options.
If you are facing financial difficulties, you should get independent advice from a qualified insolvency practitioner as soon as possible.
There are a number of options for individuals in this situation. They may include:
- receiving financial stress advice,
- coming to an informal arrangement with your creditors,
- negotiating a personal insolvency agreement (PIA), or
- negotiating a debt agreement.
In Australia, personal insolvency and debt agreements are formal arrangements between you and your creditor. While they are both regulated by the Bankruptcy Act 1966, they should not be confused with bankruptcy.
These formal arrangements allow you to settle your debts with your creditors over a period of time.
The decision as to which agreement you enter into depends on your current debt levels, current income levels and the equity you have in your assets. These amounts are regulated by the Australian Financial Security Authority (AFSA) and are adjusted every six months (in line with the CPI).
If your financial situation falls within the levels specified by AFSA, you may choose either agreement. However, a debt agreement has lower set-up fees, and can usually be set up more quickly, than a PIA.
If your financial situation falls outside the levels specified by AFSA, you are ineligible for a debt agreement and can only consider a PIA.
Debt agreements and PIAs also have slightly different set-up processes and consequences.
| DEBT AGREEMENT | PIA | |
|---|---|---|
| How does the process begin? | A debt agreement administrator lodges your proposal with the Australian Financial Security Authority (AFSA). | You appoint a controlling trustee to investigate your affairs and report to your creditors. |
| Who manages the creditor voting process? | AFSA. | Your controlling trustee. |
| Do you have to do anything during the voting process? | No. | You must give your controlling trustee any information they need, and attend a meeting either in person or by telephone. |
| Will there be an advertisement about your proposal? | No. | The details of the meeting (mentioned above) will be advertised on the AFSA website. |
| Who manages your agreement once it is approved? | Debt agreement administrator. | Registered trustee (usually your controlling trustee). |
| Can you make a debt agreement or a PIA if you have been insolvent before? | You must not have been bankrupt, proposed a PIA or made a debt agreement in the last 10 years. | You must not have proposed another PIA in the last six months. |
| Can you still run your business? | Yes, but if you are trading under a business name, you will have to tell people that you are in a debt agreement. | Yes, provided the agreement allows for it. |
| What if your business is a company? | Yes, you can still be a director of a company. | You cannot be a director of a company until you have complied with all the terms of the agreement. |
| Will your financial affairs be thoroughly examined? | The main issue when deciding whether you are a suitable candidate for a debt agreement is whether you can afford the repayments under the agreement. | Yes, your controlling trustee must investigate bank statements for at least six months before you seek to enter into an agreement. The purpose is to identify any transactions that could be retrieved under bankruptcy (such as a preference payment transaction to evade creditors). |
Are you or your company facing an uncertain financial future? David Clout leads a team of highly regarded experts in insolvency. They are experienced negotiators and strategic thinkers. David is a registered Liquidator and Bankruptcy Trustee, he is qualified to accept a range of insolvency appointments. Call +61 7 3129 3316 to arrange a consultation.