What is a personal insolvency agreement? A personal insolvency agreement is an agreement under part IX of the Bankruptcy Act (Cth) which is essentially a deal between a natural person who has become insolvent and their creditors.
It is an agreement which allows a person to reach an arrangement with their creditors without having to submit to the full status of becoming an undischarged bankruptcy under Australian law.
What is the effect of entering into an agreement like this? When you enter into a Part IX agreement, your property comes under the control of the controlling trustee and the existence of the agreement must be advertised in a national and local newspaper.
The trustee is supposed to carry out investigations into your financial affairs and a formal meeting of creditors needs to be held.
Once you have entered into the agreement, you need to comply with it and its acceptance will be recorded in the national personal insolvency index for up to 7 years which will make it almost impossible to obtain credit.
You also cannot become the director of a company unless you have the permission of a court.
What are the advantages of entering into an agreement like this? There are some major advantages to an agreement like this over bankruptcy.
There are no restrictions on income, debt or asset levels or on continuing in a business.
The agreement freezes any legal recovery action against the person filing the agreement once it has been reached.
Secured creditors are likely to accept an agreement like this because their rights to repossession are still protected.
Your debts get consolidated into on repayment plan which actually makes the administration of the process much simpler.
Finally, the full restrictions of bankruptcy do not apply.
These are the advantages of a Part IX agreement and why they are becoming increasingly common in the present economic environment.