Personal Insolvency

For many people, personal insolvency means bankruptcy, but just because someone is experiencing financial difficulties, it does not mean that they will inevitably become bankrupt. And even if you do become bankrupt, the process need not be a traumatic or difficult one. Contact us for more information in relation to any of the matters discussed below.

Arrangements without bankruptcy

The first step in dealing with any personal financial problem is one that is overlooked surprisingly often. That is simply talking with your creditors about the debts you owe, and attempting to come to an agreement about the payment of those debts. That can be the negotiation of more time to pay or an agreement on the part of the creditor to receive less than the full amount. While this is something you can do yourself, the involvement of an independent professional who understands your affairs and can speak with creditors on your behalf can assist in reassurring creditors that you are making a genuine effort to meet your obligations.

If an informal approach to creditors is not successful or appropriate, there are other options available.

In Australia, personal insolvency is governed by the Bankruptcy Act. However, despite the name, the Act provides for various forms of formal arrangements in relation to a debtor's financial affairs other than bankruptcy.

For some people with relatively small debts (the limit is currently about $80,000), a Debt Agreement provides a simple way of making a formal proposal to all creditors. This is similar to the informal process discussed above, except that the proposal is administered by the Insolvency & Trustee Service Australia (a Federal Government body) and all of your creditors are approached at the same time and vote on whatever proposal is put. If the proposal is accepted, all of your creditors (even those who voted against it) are bound by the agreement and cannot separately pursue you for their debts.

People for whom a Debt Agreement is not appropriate may benefit from making a proposal for Personal Insolvency Agreement. A debtor proposing a PIA appoints a trustee to take control of their financial affairs for a period of a few weeks. The trustee's role is to investigate the debtor's affairs and report to creditors on the likely outcome if creditors approve the PIA compared with that which would be expected if the debtor becomes a bankrupt. The trustee then convenes a meeting at which creditors vote on the proposal.

Bankruptcy

If none of the above options is suitable, bankruptcy may be the most appropriate course. Bankruptcy does have very significant consequences for a debtor and it can be a daunting prospect. However, it is important to note that the purpose of bankruptcy is to give someone who simply cannot meet his or her financial obligations a chance to make a fresh start free from the burden of unmanageable debt.

If you are facing financial difficulties and would like to discuss your options, please contact us.