The Personal Insolvency Agreement (PIA), also known as a Part 10 Debt Agreement, gives Australians a legal way to deal with debt they can’t manage. Simply put, it allows them to work with creditors to settle debts without filing for bankruptcy. This legally binding agreement helps those in debt keep their jobs while avoiding the tough financial restrictions that come with bankruptcy.
The Bankruptcy Act 1966 governs Part 10 Debt Agreements as a formal insolvency option that can give you much-needed relief from your debts. These agreements are available to everyone since they don’t have any income, asset, or debt limits—a key difference from Part 9 Agreements. You can even include tax debts in these agreements if you deal with major tax issues.
Key Features of Debt Agreements
A Part 10 Debt Agreement has several advantages distinguishing it from other ways to handle debt. You can qualify no matter how much you earn, owe, or own. This makes it available to everyone, especially those whose finances exceed Part 9 Debt Agreement limits.
The agreement typically includes:
- A trustee takes over your property and talks to your creditors
- You can pay in instalments or all at once
- You might get to keep your home or car
- You and your creditors decide how long it takes
Your proposal needs support from creditors who own more than 75% of the debt value, and over 50% of the total number of creditors present must vote yes. In addition, it only works if you’re insolvent and have Australian residence or business ties.
How is it Different from Bankruptcy?
A Part 10 Agreement beats bankruptcy by letting you:
- Skip regular bankruptcy that usually lasts three years
- Hold onto your assets instead of selling them
- Travel anywhere without asking permission
- Run your business with fewer limits
- Choose if you want to contribute income
But remember, this agreement stays on your credit file for at least five years, and your name never leaves the National Personal Insolvency Index. You also can’t be a company director while the agreement runs.
A Part 10 Agreement gives you more options than bankruptcy to fix your debt situation, but it leaves a lasting mark on your financial history.
Who Can Apply for a Debt Agreement?
Part 10 Debt Agreement rules are nowhere near as strict as other insolvency options. This makes them available to many people who face money problems. A Part 10 arrangement under the Bankruptcy Act lets you work with any amount of debt, assets, or income, unlike Part 9 Debt Agreements.
To be eligible for a Part 10 Debt Agreement, you must meet all of the following criteria:
- You’re unable to pay your debts when they’re due
- You’re currently in Australia or have a connection to Australia
- You haven’t proposed another Personal Insolvency Agreement in the past six months without the court’s permission
Part 9 Debt Agreements have tougher rules:
- You must not have gone bankrupt, had a debt agreement, or had a personal insolvency agreement in the last 10 years
- Your unsecured debts and assets need to stay under certain limits
- Your after-tax income for the next year must be less than a set amount
As a result, many people not eligible for a Part 9 Agreement turn to a Part 10 as their next best choice.
Other eligibility criteria
There’s more to a Part 10 Debt Agreement than just meeting the basic requirements.
Before you commit, it’s important to understand the whole picture and get advice from a financial counsellor or registered trustee.
Key things to consider:
- A registered trustee will assess your situation to decide if a Part 10 Debt Agreement suits you.
- This is a formal legal process under the Bankruptcy Act, and the trustee must be confident that you can meet the agreement’s obligations.
- You’ll need to sign a Section 188 Authority and meet with your creditors—these actions are considered acts of bankruptcy.
- If your proposal fails, creditors may use those acts to apply to the court to make you bankrupt.
- One potential advantage: you can be a company director again once the agreement ends, unlike bankruptcy, which disqualifies you for the whole period.
Before you make any decisions, speak to a qualified adviser to understand the risks and benefits.
How a Debt Agreement Works
The Part 10 Debt Agreement process starts when you realise you can’t meet your financial obligations. Part 10 of the Bankruptcy Act outlines this formal arrangement different from standard bankruptcy proceedings.
Setting up the agreement
You must first appoint a controlling trustee and sign a controlling trustee authority form. The trustee takes control of your property after accepting the appointment. Your trustee needs to file your completed controlling trustee authority and statement of affairs forms with the Official Receiver within two business days.
Your controlling trustee then:
- Takes a detailed look at your financial situation
- Creates a detailed report for creditors
- Sets up a creditors’ meeting within 30 business days of their appointment
- Gives creditors at least 10 business days’ notice of the meeting
Creditors vote on your proposal during this meeting. You need both a majority in number and at least 75% in debt value of voting creditors to back your arrangement. This special resolution matters a lot. Without it, creditors might push you into bankruptcy.
Payment structure
After approval, you pay your debt agreement administrator directly instead of individual creditors. The administrator then handles payments to creditors based on the agreed terms.
The payment setup can be quite flexible and might include:
- A lump-sum payment from your funds or from third parties
- Property transfer for sale and distribution to creditors
- Regular payments over the agreed period
Your agreement can run up to three years (or five years if you own your home). During this time, unsecured creditors can’t contact you about debts in the agreement or add more interest.
Secured creditors still have rights to take back assets like houses or cars if you miss payments. So while the agreement protects much of your finances, you must handle secured debts separately.
Impact on Your Financial Future
A Part 10 Debt Agreement will affect your financial profile long after you complete it. You need to understand these effects before deciding about your financial future.
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Asset Ownership
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Employment Restrictions
Your credit report will show your debt agreement for at least five years. This makes getting credit much harder during and after the agreement period. The National Personal Insolvency Index (NPII) will permanently keep your details, with specific timeframes based on your agreement’s outcome:
For completed agreements: Your listing stays for five years from the agreement date or until you complete your obligations, whichever takes longer.
For terminated agreements: Your details stay visible for up to five years from the agreement date or two years after termination.
For void agreements: Your information remains for five years from the agreement date or two years after the void order.
Your borrowing capacity may take a hit even after you successfully complete all your obligations.
Get Out of Debt with SV Partners
The Part 10 Debt Agreement serves as a middle ground between informal arrangements and bankruptcy. This formal debt solution could align with your financial situation, but you must consider your options carefully.
A Part 10 agreement needs a complete picture of your situation. It relieves creditor pressure and might reduce your debt, but it significantly affects your credit history. Before signing anything, calculate whether you can meet the agreement’s terms.
Expert guidance helps you navigate the Part 10 provisions of the Bankruptcy Act. As a team of Registered Trustees and Registered Liquidators with years of experience helping individuals and corporate clients through financial strain, SV Partners can walk you through all available options.
Contact us today to make an appointment, or call 1800 246 801 to arrange a confidential consultation.
