FAQ’s

Insolvency is the inability of an individual or corporation to pay debts as and when they fall due.

The Insolvency Glossary produced by the Australian Securities and Investment Commission (ASIC) provides a list of useful terms in this regard.

The law relating to personal insolvency is legislated by the Bankruptcy Act 1966 (Cth) and is administered and regulated by the Australian Financial Security Authority (AFSA).

Every year, thousands of Australian individuals go broke. Often (in about 50 percent of cases) this is avoidable. There are approximately:

25,000 bankruptcies; and

8,000 corporate (business) administrations,

These appointments affect approximately 400,000 creditors every year.

The key to surviving and avoiding a financial crisis is to understand the early warning signs.

PIPA does not recommend any specific individual practitioners or their firms. Please use our Membership page to find a practitioner.

We strongly recommend that, when selecting a Registered Debt Agreement Administrator, you consider their:

expertise and familiarity with your situation; and schedule of fees and charges and when they become payable.

For further information about bankruptcy and its alternatives, particularly if you are in financial difficulty, call AFSA on 1300 364 785.

A person who is insolvent may avoid bankruptcy proceedings by proposing a Part IX Debt Agreement.

A Debt Agreement is a legally binding agreement between a debtor and their creditors where creditors agree to accept a sum of money which the debtor can afford.  Debt Agreements are a flexible alternative to bankruptcy.

Payment by the debtor is based on their capacity to pay having regard to all their income and household expenses. The debtor is released from their debts when they complete all payments and obligations under the agreement. A Debt Agreement may provide for:

weekly, fortnightly or monthly payments from the debtor’s income;

deferral of payments for an agreed period; and/or

a lump sum payment to be divided among creditors.

Debtors can lodge a Debt Agreement proposal if they:

are insolvent (unable to pay their debts as and when they fall due);

have not been bankrupt, had a Debt Agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years (10 years since discharge);

have unsecured debts, assets and after-tax income for the next 12 months all less than the statutory limits (please see the current Indexed Amounts fact sheet or the AFSA website.)

A debtor who proposes a Debt Agreement commits an Act of Bankruptcy. A creditor can use this to apply to court to make the debtor bankrupt if the proposal is not accepted by creditors.

The debtor’s name and other details appear on the National Personal Insolvency Index (NPII), a public record, for the proposal and any Debt Agreement.

The ability of the debtor to obtain further credit is affected. Details may also appear on a credit reporting organisation’s records for up to seven years.

During the voting period creditors cannot take debt recovery action or enforce a remedy against the debtor or the debtor’s property; and must suspend deductions by garnishee on debtor’s income. Also, sheriffs are unable to execute judgment debt.

Do not leave it too late. Under some circumstances it may be too late to implement a workout or restructuring plan to prevent bankruptcy.

PIPA members are specialists in finding a solution ranging from reorganisation of your debts through a Debt Agreement or as a last resort, bankruptcy.  However, a Registered Debt Agreement Administrator cannot act as a Trustee in Bankruptcy. A list of Bankruptcy Trustees is maintained by AFSA or the Official Receiver at AFSA can act as a Trustee in Bankruptcy.

In assisting the debtor to prepare a Debt Agreement proposal the Debt Agreement Administrator works with the debtor to establish their circumstances, their household expenses and income for the next year, and decide what the debtor can afford to pay creditors as their best offer.

The Debt Agreement Administrator will then assist in the preparation of the requisite forms including:

Debt Agreement Proposal – identifies the debtor and outlines what the proposal offer is in dollar terms;

Explanatory Statement – informs the creditors about their income, expenses, assets and debts, personal circumstances, household expenses and the reasons for financial difficulty;

Statement of Affairs – sets out in detail their personal information and circumstances, reasons for financial difficulty, sources of income, assets and debts. The completed form is not sent to creditors and is not a public document.

Once the documents are prepared they are lodged with the AFSA. AFSA ensures that the debt agreement proposal satisfies the eligibility criteria and if accepted for processing, records the proposal on the National Personal Insolvency Index (NPII).

Each creditor is sent a report, a copy of the Debt Agreement Proposal, Explanatory Statement and a Statement of Claim and Voting.  Creditors are asked to vote upon the debtor’s proposal by returning the Statement of Claim and Voting form by the deadline date.

If accepted by a majority in value of creditors who vote, the proposal becomes an agreement. AFSA updates the NPII to show the debtor as being in a Debt Agreement.  After a Debt Agreement has been accepted, the debtor must comply with the agreement and ensure it is completed by the completion date listed on the proposal.

If a majority of creditors in value vote to reject the proposal or no creditors vote, then the voting outcome is recorded on the NPII. If the debtor withdraws their proposal or the Official Receiver cancels it, AFSA also updates the NPII with this result. Creditors can commence or continue with action to recover their debts. A debtor can submit a new proposal to send to creditors for voting.

Debt Agreement Administrators can assist you to enter into a Part IX Debt Agreement and then act as administrator of the agreement. Fees are generally charged for the initial assistance and the continuing administration.

Amendments to the Bankruptcy Act came into effect in 2007 which provided for greater regulation of Debt Agreement Administrators including the introduction of a requirement for Debt Agreement Administrators to be formally registered and to pass an eligibility test (except in limited circumstances).

The Inspector General is given wide powers to regulate Debt Agreement Administrators under the Bankruptcy Act.

All Full Members of PIPA are formally registered with AFSA.

In order to prepare and carry out the terms of the Debt Agreement proposal offered to creditors, debtors must obtain consent from a Debt Agreement Administrator. Generally this is from a Registered Debt Agreement Administrator.

This may also be an unregistered administrator, friend or associate of the debtor, however this person needs to satisfy ITSA’s eligibility test.

A Certificate signed by the Debt Agreement Administrator must accompany Debt Agreement Proposals lodged by a practitioner

Debt Agreement Administrators and other advisers may charge a fee for providing information and preparing debt agreement forms.

You should not pay any fees to a Debt Agreement Administrator prior to the Debt Agreement Administrator sending a completed proposal to you for execution.

Debt Agreement Administrators are entitled to be remunerated for administering the Debt Agreement including receiving and distributing the monies. The Debt Agreement Administrator is required to express that remuneration as a percentage of the total amount payable by the debtor must take remuneration proportionally over the duration of the agreement.

All provable debts owing when the proposal is accepted for processing by ITSA must be disclosed by the debtor.

Section 82 of the Bankruptcy Act states all debts and liabilities which are present, future, certain or contingent which exist are provable and must therefore be included in the Debt Agreement. This includes (but is not limited to):

• credit card debt
• store card debt
• personal loans
• past utility accounts
• rental purchase debts
• merchant accounts
• judgment debt
• certain tax liabilities

However, secured debt (subject to some exceptions) cannot be included nor can council rates. Debts of this nature must be dealt with outside of the Debt Agreement.

Your credit file is a record of information that creditors utilise to assess you during the credit application process for credit. It is maintained by credit reporting bureau. In Australia this service of offered by Veda Advantage and Dun & Bradstreet. These credit reporting agencies  are required to comply with privacy laws in dealing with the information that it maintains.

The giving of a Debt Agreement proposal constitutes an Act of Bankruptcy under the Bankruptcy Act and after acceptance of the proposal for processing by AFSA, it is recorded in the National Personal Insolvency Index (NPII).  The credit reporting agencies will use the information on the NPII to advise any enquiring creditors that you have proposed a Debt Agreement and / or are presently subject to a Debt Agreement.  This will be recorded on your credit rating for a period of seven years after which time it will usually be deleted.

Accordingly, your ability to obtain future credit is likely to be affected by entering into a Debt Agreement, or alternatively you may be charged a higher rate of interest for any credit facilities you establish.

If you have had difficulty in repaying your debts or are falling behind in repayments, your credit file may already be affected and entering a Debt Agreement may be more favourable to outstanding writs, defaults and / or bankruptcy being listed on your file.

Submitting a Debt Agreement Proposal is a serious step and there are negative consequences if the debtor fails to comply with the terms of an established Debt Agreement.

The Debt Agreement Administrator will notify the AFSA and creditors in respect of any default in payment by the debtor that results in a cumulative three-month arrears or six-month arrears in respect of the Debt Agreement. An agreement must be completed within 6 months of the specified date.  Therefore, it is possible that if the debtor does not maintain regular payments as undertaken, then creditors may elect to terminate it and pursue the debtor for immediate repayment of the outstanding debts, which may result in bankruptcy.

Maintaining professional standards is one of our core objectives. Complaints are important and will be properly dealt with. They fall into three categories:

• misunderstanding of the processes being undertaken, often caused by a failure of effective communication by the Debt Agreement Administrator;
• matters that can be readily resolved by discussion;
• serious matters requiring further action.

Most complaints fall into the first category.

We have no jurisdiction to intervene if the practitioner you’re complaining about is not a member of the PIPA.  We will however help you find the right regulator to ensure your complaint goes to the right area.

What we will do.

We will assess your complaint and then we will advise you what we are doing about it.  We do not have many official remedies open to us. However, we can:

• discuss the matter  with the practitioner to see if the matter can be resolved;
• refer the matter to the relevant regulator.

What you should do.

Before you make a formal complaint to us, or the regulator:

• think carefully about the basis of your concern
• write down your concern in a few sentences
• make a list of the important facts
• write down the outcome you are looking for – what do you want the Debt Agreement Administrator to do?
• call the Debt Agreement Administrator – ideally, arrange a face to face meeting
• put your problem to them in the most direct way you can manage, as calmly as you can
• ask them to comment on the issue and to help you solve the problem
• keep a record of your meeting and conversation