Personal Insolvency Option

A Personal Insolvency Agreement

If your debts have outgrown what a Part IX debt agreement allows, Part X of the Bankruptcy Act lets you put a binding proposal to your creditors instead of becoming bankrupt. It starts with one free, confidential conversation.

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Understanding Part X

What a personal insolvency agreement actually is

A personal insolvency agreement (PIA) is a legally binding agreement between you and your creditors under Part X of the Bankruptcy Act 1966. You propose how you will settle debts you cannot pay. If enough creditors agree, that proposal binds all of them, and you do not become bankrupt.

It begins when you sign an authority under section 188 of the Act, appointing a controlling trustee to take control of your property and put the proposal to your creditors. Be clear-eyed about that step. Signing a section 188 authority is itself an act of bankruptcy, and once the authority is effective you cannot revoke it. It does not make you bankrupt, but it is not a document to sign without advice.

People choose a personal insolvency agreement over a Part IX debt agreement for its flexibility. There are no limits on your income, your assets or the size of your debts, so a personal insolvency agreement stays available when your unsecured debts are too large for a debt agreement. You decide what to offer: a lump sum payment, instalments out of future income, particular assets, or a combination.

The essentials
What it is
A legally binding agreement under Part X of the Bankruptcy Act 1966 to settle debts without becoming bankrupt.
Who it suits
People with assets or reliable income to contribute, and debts too large for a Part IX debt agreement.
Is it binding?
Yes, once creditors pass it: a majority in number and at least 75% in debt value of those who vote.
On the NPII?
Yes, permanently. The National Personal Insolvency Index is the public register of personal insolvencies.
What you can propose

Three things a PIA proposal can put on the table

The Act does not prescribe what your proposal looks like. Most are built from one or more of these, sized to what you can genuinely deliver, because your creditors decide commercially. They weigh your offer against what a bankruptcy would return them.

01

A lump sum payment

Settle for a single agreed amount.

You offer one payment in full and final settlement of the debts the agreement covers, often funded from outside your own pocket, whether that is family, a business partner or a refinance. Creditors may accept less than the full amount owed if the lump sum beats what a trustee would recover in a bankruptcy. Section 73 allows a composition after bankruptcy. Part X avoids the bankruptcy in the first place.

02

Instalments out of future income

Pay an affordable amount over an agreed term.

Instead of a single payment, you commit to contributions over a set period from what you earn. Because a personal insolvency agreement has no income limits, it remains open to higher earners who are shut out of Part IX debt agreements, and both the amount and the term are negotiated rather than fixed by statute.

03

Transferring or realising specific assets

Deal with particular property on your own terms.

A proposal can name specific assets to be sold or transferred and leave the rest alone. You choose which property goes into the deal rather than having a trustee decide. If there is nothing you can realistically offer, bankruptcy or an informal arrangement is the more honest route.

Why people choose Part X

What a personal insolvency agreement can give you

A personal insolvency agreement (PIA) is not a debt-relief product and not the easy option. What it offers is room to negotiate an outcome on terms you helped set, and a way to settle your debts without declaring bankruptcy.

No debt limits

A personal insolvency agreement sets no income, asset or debt limits, so it stays open when your debts are too large for Part IX debt agreements.

You propose the terms

You decide what goes on the table: a lump sum, instalments, specific assets, or a combination. It is your proposal, not a standard product. The resolution creditors pass does specify the provisions that end up in the formal agreement, though, so the final terms are negotiated rather than dictated by you.

Creditor pressure stops

Once creditors accept, the agreement binds them all, and recovery action on the debts it covers ends.

Assets can be kept

Because you set the terms, assets a trustee might otherwise sell in a bankruptcy can sometimes be kept, if creditors get more instead.

Step by step

How the personal insolvency agreement process works

A personal insolvency agreement follows a set sequence under the Act. Knowing it in advance removes most of the uncertainty.

  1. STEP 1

    You sign a section 188 authority

    The controlling trustee authority form under section 188 of the Bankruptcy Act 1966 appoints your controlling trustee. Three documents go to them before the authority takes effect: a statement of your affairs, your proposal, and a draft of the agreement itself. So the deal is on paper first. The proposal must also name the registered trustee who would administer the agreement if creditors pass it. Signing the authority is an act of bankruptcy; it cannot be revoked once effective, and you cannot sign another within six months unless the Court grants leave.

  2. STEP 2

    The trustee takes control and reviews your position

    They examine what you own, what you owe and what you can realistically sustain, because they have to put your position to your creditors on the record. If a creditor’s petition was presented before the authority took effect, or after it but before the first creditors’ meeting, the Act stays proceedings on that petition until the meeting ends or is adjourned.

  3. STEP 3

    The trustee reports to your creditors

    Creditors receive your proposal, a statement of your affairs and the trustee’s report. The Act requires the trustee to state whether creditors’ interests would be better served by your proposal or by your bankruptcy, to name any creditor who is a related entity of yours, and to declare whether you are a related entity of theirs. That stated view is what the vote turns on.

  4. STEP 4

    Creditors meet and vote

    Acceptance needs a special resolution: a majority in number and at least 75% in debt value of the creditors who vote. Both tests must be met, and it is 75% of those voting, not of everyone you owe, so silent creditors do not count against you. In practice, a few large creditors, often the ATO or a bank, decide it. That resolution also specifies the provisions going into the agreement, so creditors shape the final terms.

  5. STEP 5

    The agreement binds every creditor it covers

    Once the resolution passes and the agreement is executed, it binds every creditor whose debt it covers, including those who voted against it and those who did not vote. Recovery action stops.

  6. STEP 6

    The trustee administers it through to completion

    The trustee collects what the agreement provides for, distributes it and reports until its terms are fully complied with. The agreement releases a provable debt only where it expressly states so, and anything left unreleased may be pursued once its obligations are discharged. Your name stays on the National Personal Insolvency Index permanently; you cannot manage a corporation until you comply in full, and an agreement set aside or terminated rather than completed is itself an act of bankruptcy.

Common Questions

What people ask us first

If yours isn't here, just ask on your first call.

How much does a personal insolvency agreement cost?+
More than a Part IX debt agreement. The proposal must be investigated, reported on, and put to a creditors’ meeting before it becomes an agreement, and that work carries the controlling trustee’s remuneration. Trustee fees are a significant part of what a personal insolvency agreement costs, and you should expect a written estimate before you sign anything. On top of that sit three AFSA charges: a document processing fee when the authority is lodged, an administration fee on the authority itself, and a realisations charge on money the trustee receives.
What happens if my creditors vote no?+
A failed vote does not automatically make you bankrupt, but it is not consequence-free. Creditors can instead resolve that you present a debtor’s petition within seven days. If no resolution is passed within four months of the date the meeting was called, the Court may make a sequestration order on the application of a creditor, the controlling trustee, or the Inspector-General. You are also left having committed an act of bankruptcy, and a fresh section 188 authority is closed off for six months unless the Court grants leave. The next step is usually an informal arrangement, a Part IX debt agreement if you are eligible, or bankruptcy.
What shows on the register and on my credit file?+
A personal insolvency agreement (PIA) is recorded permanently on the National Personal Insolvency Index, the public register maintained by the Australian Financial Security Authority, and anyone can search it. Your credit report is a separate record kept by credit reporting bodies to their own rules, so what appears on your credit file is a different question. A PIA will affect your ability to obtain credit while it is running.
Can I keep my house under a personal insolvency agreement?+
Sometimes, and it is one of the main reasons people look at a personal insolvency agreement. Because you propose the terms, a house can be left out of the deal if creditors get more from what you offer than a bankruptcy trustee would recover from your equity. A mortgage is secured, so the lender’s rights are unaffected.
Can I stay a company director under a personal insolvency agreement?+
Not while the agreement is running. Once you execute a personal insolvency agreement, you are disqualified from managing corporations until its terms are fully complied with, under section 206B(4) of the Corporations Act 2001. Signing the section 188 authority does not disqualify you, so the restriction begins on execution rather than at the start of the process. A Part IX debt agreement carries no directorship restriction. Bankruptcy disqualifies you for its duration.
Should I talk to a free financial counsellor first?+
Often, yes. For smaller debts or a temporary cash-flow problem that is the right first call, and the National Debt Helpline on 1800 007 007 will put you in touch with a financial counsellor at no charge. Where the debts are larger, or property or a business is involved, you will need a registered trustee as well, but the two are not alternatives, and free advice first costs you nothing.
What’s the difference between a personal insolvency agreement and Part IX debt agreements?+
Debt agreements under Part IX have income, asset and debt limits, are accepted on a majority in value of the creditors who reply, come off the National Personal Insolvency Index after a set period of generally at least five years, and put no restriction on being a director. A personal insolvency agreement has no limits, needs a majority in number and at least 75% in debt value of those who vote, stays on the NPII permanently, restricts managing corporations until you comply in full, and costs more to set up.
Does a personal insolvency agreement cover secured debts?+
A personal insolvency agreement deals with your unsecured debts. A secured creditor, whether a mortgage lender or a car financier, retains its security and rights over the asset, so a home loan is not compromised and you still have to keep meeting your repayments. Some unsecured debts are not released either: the agreement releases only provable debts where its terms say so, and it cannot release a debt that would survive a bankruptcy discharge, such as court fines, child support, or a student loan. Maintenance obligations also stay enforceable.
Why Rapsey Griffiths

Real people, on your side, when it matters most

At Rapsey Griffiths, you'll deal with the people whose name is on the door: Mitch Griffiths and Chad Rapsey, Founders. Between them, Mitch and Chad bring decades of experience in restructuring and personal insolvency, and a calm, straight-talking approach that helps people understand exactly where they stand.

Most people who call us about a personal insolvency agreement have read a definition somewhere and are none the wiser. It is the least explained of the personal insolvency options, and the one where detail matters most, because the proposal is yours.

Mitch Griffiths and Chad Rapsey, founders of Rapsey Griffiths
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