A personal insolvency agreement is a legally binding agreement between an indebted person and their creditors. It is a flexible way to settle debts without becoming bankrupt.
A personal insolvency arrangement involves the appointment of a trustee to take control of the indebted person’s property, and make an offer to their creditors. The offer may be to pay part or all of their debts by instalments or lump sum. Personal insolvency arrangements may sometimes permit the indebted person to keep some of their assets, like their home or vehicle.
Section 188A of the Bankruptcy Act 1966 (Cth) provides the requirements for a Personal Insolvency Agreements and states that:
“(1) A personal insolvency agreement is a deed that:
- (a) is expressed to be entered into under this Part; and
- (b) complies with subsection (2)”
Subsection (2) details the requirements of what must be contained in a Personal Insolvency Agreement:
(a) identify the debtor’s property (whether or not already owned by the debtor when he or she executes the agreement) that is to be available to pay creditors’ claims; and
(b) specify how the property is to be dealt with; and
(c) identify the debtor’s income (whether or not already derived by the debtor when he or she executes the agreement) that is to be available to pay creditors’ claims; and
(d) specify how the income is to be dealt with; and
(e) specify the extent (if any) to which the debtor is to be released from his or her provable debts; and
(f) specify the conditions (if any) for the agreement to come into operation; and
(g) specify the circumstances in which, or the events on which, the agreement terminates; and
(h) specify the order in which proceeds of realising the property referred to in paragraph (a) are to be distributed among creditors; and
(i) specify the order in which income referred to in paragraph (c) is to be distributed among creditors; and
(j) specify whether or not the antecedent transactions provisions of this Act apply to the debtor; and
(k) make provision for a person or persons to be trustee or trustees of the agreement; and
(l) provide that the debtor will execute such instruments and generally do all such acts and things in relation to his or her property and income as is required by the agreement.