Personal Insolvency – Options other than Bankruptcy

While bankruptcy is the best known form of administration where personal insolvency is concerned, it may not always be the most appropriate option. In addition, there may be valid reasons why an individual may wish to avoid bankruptcy.

In cases where bankruptcy is not appropriate or desirable, debt agreements, arrangements under Part X or informal arrangements may be appropriate strategies.

Part X (PIA) – Personal Insolvency Agreement
Debtors wishing to avoid bankruptcy may, with the sanction of their creditors, have their property administered under Part X of the Bankruptcy Act by way of a formal agreement entered into between debtors and their creditors.

This type of administration is known as a Personal Insolvency Agreement.

In most cases Part X administrations may be expected to provide a better return for creditors than would bankruptcy. At the same time, debtors avoid the stigma and restrictions that accompany bankruptcy.

A Part X comes into being when a proposal is put to creditors who, in voting at a meeting convened by the Controlling Trustee, accept the proposal or a variation by a majority in number and 75% in value.

The proposal could encompass any form of arrangement, from an assignment of assets, to repayment schemes to a form of composition, utilizing funds not normally available to creditors.

Generally, creditors will only accept Part Xs if they provide a better return than Bankruptcy.

Debt Agreements (Part IX)
This arrangement is best where the debts are small, the debtor has few assets and his/her income is below a threshold level.
It is cheap to set up and the debtors do not have to confront their creditors.
A proposal can be posted to the creditors, who accept or reject the proposal by mail.

Informal Support & Assistance
These strategies, which include workouts and Monitoring processes, may be appropriate where the insolvency is not so serious as to require formal administration. This type of administration is most appropriate where debts are small or there are very few creditors, all of whom are willing to assist you through an informal workout.

Generally, with informal arrangements, the fees are lower than in formal administrations.

Unfortunately, however, informal arrangements do not have the protection of the Bankruptcy Act and if any creditor decides to pull out of the arrangement, the whole arrangement may fail, leaving the debtor back at square one.