Debt Agreement

A debt agreement is a legally binding arrangement between the debtor and his/her creditors that must be accepted by the majority (in value) of creditors who vote on proposals.

The debtor can offer to pay creditors in instalments or a lump sum payment that may be less than the full amount owed. The debtor can also propose a freeze on debts for a set time. The value of unsecured debts, assets and after-tax income must be under certain limits to propose a debt agreement.

Back

Bankruptcy

A debtor can petition for their own bankruptcy. In the alternate, a creditorm ay apply to the Court seeking an order to bankrupt the debtor.

The role of the trustee is to take control of the divisible property available in the bankrupt estate and realise it for the benefit of all creditors. The Trustee’s duties are also to conduct investigations into the examinable affairs of the bankrupt, to establish whether the bankrupt has committed any offences by reference to the Act and to determine whether the bankrupt has entered into transactions that are void as against the Trustee.

The Trustee is also required to assess the bankrupt’s income each year during the bankruptcy to determine whether the bankrupt is required to make compulsory contributions to the bankrupt estate.

All unsecured creditors must stop all recovery actions and should contact the Trustee’s office for their claims to be recorded in the bankruptcy administration.

The bankruptcy will last for three years from the date of lodgement of the bankrupt’s Statement of Affairs, or longer if extended by the Trustee under certain circumstances. After that period the bankrupt is discharged from most debts.

Back

Personal Insolvency Agreement

A personal insolvency agreement is a debtor and his/her creditors which offers payment in full or part by instalments or a lump sum. The offer must be accepted by a special resolution of creditors (majority in number and at least 75% in value). There are no debt, asset or income limits to be eligible to propose a personal insolvency agreement.

The debtor appoints a controlling trustee who will investigate his/her affairs and report to creditors. Should creditors accept the proposal, a trustee must administer the agreement.

We can assist to formulate and present a proposal on behalf of a debtor to his/her creditors that will be both achievable and timely when compared to the alternative of bankruptcy

Back

Comparison of Options

Eligibility

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Australian connection	Must have a residential or business connection	No residential or business connection required	Must have residential or business connection
Previous insolvency	While previous insolvency does not by itself make a person ineligible, the Official Receiver may not accept a debtor’s petition if the debtor meets certain conditions	Must not have been a bankrupt, proposed a personal insolvency agreement or made a debt agreement in the previous 10 years	Must not have proposed another personal insolvency agreement in the previous six months
Income threshold	No	Yes. See AFSA website for indexed amount	No
Asset threshold	No	Yes. See AFSA website for indexed amount	No
Debt threshold	No	Yes. See AFSA website for indexed amount	No

Income, employment & trade

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Payments from income required?	Yes, mandatory payments required if income exceeds a statutory threshold. See AFSA website for Indexed amounts	Yes, if the terms of the agreement require payments from income – this occurs in most cases	Only if the terms of the agreement require payments from income
Ability to continue to operate a business	It depends on the nature of the business and if the trustee sells the business assets. Key points include: when a partner becomes bankrupt it dissolves an existing partnership if trading under a business or assumed name after the date of bankruptcy, a bankrupt must disclose their bankruptcy to people dealing with the business. This includes bankrupts trading alone or jointly	Yes, unless terms of the agreement provide otherwise. If trading under a business name or assumed name (whether alone or in partnership) the debt agreement must be disclosed to all people dealing with the business	Yes, if agreement allows for debtor to continue to operate the business
Ability to be a director of, or otherwise manage, a corporation	No	Yes	Not until terms of agreement fully complied with
Other employment restrictions	Professional bodies and/or trade associations may have certain conditions of membership for the duration of the bankruptcy. There may be restrictions on holding some statutory positions during the period of bankruptcy/agreement

Assets

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Ability to retain assets	No, unless it is exempt property (for example, household furniture, tools of trade up to a certain value)	Yes, unless terms of the agreement provide otherwise	Yes, subject to the terms of the agreement
Ability to retain assets acquired during the period of the agreement/ bankruptcy	No, unless property being acquired is exempt property	Yes	Yes, if agreement allows for debtor to continue to operate the business
Ability to be a director of, or otherwise manage, a corporation	No	Yes	Yes
Can assets previously sold or transferred for less than market value be recovered?	Yes, subject to certain statutory conditions being met	No	Not unless the agreement specifies that the antecedent transaction provisions of the Bankruptcy Act apply to the debtor
Can payments made to creditors prior to the agreement/ bankruptcy be recovered?	Yes, subject to certain statutory conditions being met	No	Not unless the agreement specifies that the antecedent transaction provisions of the Bankruptcy Act apply to the debtor

Debts

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Unsecured debts	Unsecured creditors receive pro rata payment from funds recovered by the trustee after fees and costs have been deducted. There are some statutory priority payments to particular classes of creditors like employees	All unsecured creditors receive pro rata payments	Unsecured creditors can receive differential payment rates if the terms of the agreement provide for this. There are some statutory priority payments to particular classes of creditors like employees
Secured debts	Rights of secured creditors are not affected. They can repossess secured assets if there is default in payment	Rights of secured creditors are not affected. They can repossess secured assets if there is default in payment	Rights of secured creditors are not affected. They can repossess secured assets if there is default in payment
Release from debt	Upon discharge from bankruptcy, but not released from some types of debts	Upon completing terms of agreement, but not released from some types of debts	As per terms of the agreement, but not released from some types of debt
Fees for administration of the estate/s	Subject to creditor approval. Fees can be reviewed upon application to the Inspector-General	Subject to creditor approval	Subject to creditor approval. Fees can be reviewed upon application to the Inspector-General

Restrictions

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Ability to travel overseas	Prior consent of trustee required. A fee is payable where the trustee is the Official Trustee	No statutory restriction	No statutory restriction
Ability to travel within Australia	No statutory restriction	No statutory restriction	No statutory restriction
Incurring further debt	Must disclose insolvency if incurring debt or obtaining goods and services on credit in excess of a threshold. See AFSA website for Indexed amounts	Must disclose the debt agreement if incurring debt or obtaining goods and services on credit in excess of a threshold. See AFSA website for Indexed amounts	No statutory restriction

Fees and Charges

	BANKRUPTCY	DEBT AGREEMENTS	PERSONAL INSOLVENCY AGREEMENT
Statutory filing fee	No	Yes (see AFSA website)	Yes (see AFSA website)
Statutory levies	A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government (see AFSA website)	A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government (see AFSA website)	A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government (see AFSA website)
Fees for administration of the estate/s	Subject to creditor approval. Fees can be reviewed upon application to the Inspector-General	Subject to creditor approval	Subject to creditor approval. Fees can be reviewed upon application to the Inspector-General

As per AFSA Website: https://www.afsa.gov.au/debtors/comparison-of-options-1

 

Back