19
Nov

What is the difference between a Part IX and a Part X Agreement?

There are alternatives to bankruptcy that ought to be considered if you are struggling financially.  Two of these options are provided for under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), namely:

  • a Part IX Consumer Debt Agreement (Debt Agreement); and
  • a Part X Personal Insolvency Agreement (PIA).

Part IX Consumer Debt Agreements

A Part IX Consumer Debt Agreement (Debt Agreement) is an agreement between a debtor and a creditor, where the creditor accepts a sum of money which the debtor can afford (that is less than the amount that is owing to the creditor).

To be eligible for a debt agreement, you must:

    • be insolvent (unable to pay your debts when they are due);
    • have not been bankrupt, entered into a debt agreement or given an authority under a PIA under Part X of the Bankruptcy Act; and
    • be under the set limits specified by AFSA for unsecured debts ($116,662.00), assets ($233,324.00) and after tax income for the next 12 months ($87,496.50). Please note that the threshold amounts provided were current as at November 2019 and will change in March 2020.

A Debt Agreement is an act of bankruptcy which can be relied upon by a creditor to commence bankruptcy proceedings.  Accordingly, it will still impact your credit rating for 5 years (the same as bankruptcy), however, the time that your name appears on the National Personal Index (NPII) will be the later of 5 years from the date of the agreement or 2 years after the end date (as opposed for forever if you were to choose bankruptcy instead).

As opposed to bankruptcy, a Debt Agreement, has no restrictions on your employment or income.  Further, rather than 3 years (which is the minimum length of time for bankruptcy), a Debt Agreement will only apply until the debt has been paid.

Part X Personal Insolvency Agreements

Personal Insolvency Agreements (PIA) is also an agreement between you and your creditors and involves the appointment of a trustee to take control of your property and make an offer to your creditors to pay all or some of your debts by instalments or by lump sum, which, if they accept, will form the terms of your PIA.

Creditors are likely to accept the PIA in circumstances where it means that they would receive more than they would otherwise receive if you were to become bankrupt.  However, in order to be successful, it requires both a greater than 75% majority in the value and a greater than 50% in number majority of the creditors who attend in person or by proxy, to vote in favour of the proposal.

The advantages of a PIA over bankruptcy include:

  • it avoids formal bankruptcy (which lasts for three years);
  • assets don’t need to be sold (as opposed to bankruptcy);
  • it avoids some of the restrictions placed on a bankrupt in relation to travel, operating a business and incurring debts; and
  • there are no requirements to pay income contributions (which may be required under bankruptcy).

As is the case with a Debt Agreement, a PIA is also an act of bankruptcy, which can be relied upon by a creditor to apply to the Court for orders making you a bankrupt.  Furthermore, it will appear on your credit rating for at least 5 years and will be recorded on the NPII forever.

Unlike a Debt Agreement, however, there are no debt, asset or income limits to be eligible for a PIA. You must, however, be insolvent to propose a PIA.

If you have any queries, or wish to discuss your options, please contact Dark Legal for a free consultation.