Personal Insolvency Agreement: A Path to Debt Relief

If crushing debt feels suffocating, and bankruptcy seems like the only way out, there's another option. A personal insolvency agreement offers a legally structured path to negotiate debt repayment with your creditors and avoid the severe consequences of bankruptcy.

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What is a Personal Insolvency Arrangement?

A personal insolvency agreement (PIA) is a formal arrangement in Australia between a debtor and their creditors to settle debts without entering full bankruptcy. Governed by Part X of the Bankruptcy Act 1966 as an alternative to bankruptcy, a PIA allows a debtor to propose an agreement to pay their creditors in a manner that differs from their contractual obligations.

This debtor agreement may involve a payment plan, a lump sum payment, or a combination of both. It's managed by a controlling trustee who facilitates the agreement, ensures compliance, and oversees the distribution of payments to creditors.

Who is Eligible for a PIA?

To be eligible for a PIA, you must be insolvent – unable to pay your debts. There are no debt, asset, or income limits to qualify, making it accessible to anyone regardless of their financial obligations or resources. However, you must engage a registered trustee or insolvency practitioner to act as the administrator of the PIA.

Types of Debt Covered Under a PIA

Types of Debt Covered Under a PIA

Debts Covered by PIA

Included Debts

  • Housing loans
  • Investment property loans
  • Buy-to-let mortgages
  • Personal guarantees
  • Personal loans
  • Credit union loans
  • Business loans
  • Credit card balances
  • Overdrafts

Excluded Debts

In some cases, these debts may be included with the creditors’ consent.

  • Taxes owed to the state
  • Local government charges
  • Amounts due under the Nursing Home Support Scheme
  • Service charges
  • Social welfare liabilities
  • Local authority rates
  • Family maintenance payments
  • Court fines for criminal offences
  • Debts from personal injury or wrongful death claims
  • Debts arising from loans obtained by fraud

How to Initiate a Personal Insolvency Agreement

How to Initiate a Personal Insolvency Agreement

Steps to Initiate a Personal Insolvency Agreement

A registered trustee manages the PIA and communicates with both you and your creditors to create an appropriate repayment plan. The creditors then vote on the proposed agreement. If they approve it, the PIA becomes a legally binding contract for all involved parties. Here’s how the process will unfold:

1. Eligibility Assessment

You’ll need to consult with a qualified insolvency practitioner to determine your eligibility. This will be based on your debt amounts, income levels, and inability to meet payments as they fall due.

2. Proposal Development

Work with your insolvency practitioner to draft a proposal outlining how you will settle your debts. This may involve:

  • A lump-sum payment
  • Regular payments over time
  • A combination of both
  • Sale of assets

3. Creditor Notification

Your insolvency practitioner issues a Declaration of Intention to creditors, signalling your intent to pursue a PIA.

4. Protective Certificate

A protective certificate is issued, which temporarily shields you from creditor actions while the PIA is being considered.

5. Creditor Meeting

Your proposal is presented at a creditors’ meeting. Creditors vote to accept, reject, or negotiate modifications. A 75% majority approval in both the number of creditors and the value of debts is required.

6. Formalising the Agreement

If approved, your insolvency practitioner will register the PIA with the Australian Financial Security Authority (AFSA). It becomes legally binding for you and your creditors.

7.  PIA Administration

You make payments to your insolvency practitioner, who distributes the funds to creditors according to the terms of the PIA.

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Ending a PIA

There are three ways for a PIA to be completed.

Ending a PIA

Successful Completion

This is the most common way to end a PIA. You fulfil all payment obligations outlined in the PIA, and your debts covered by the agreement are discharged. The PIA is removed from your credit record after 5 years.

Early Termination

If you fail to meet the agreed-upon payment schedule or other PIA conditions, your trustee may terminate the agreement. This could lead to bankruptcy proceedings.

However, if your financial circumstances change significantly, and you can no longer make payments, you may be able to renegotiate the PIA or apply to the court for termination.

Court Order

A creditor or your trustee may apply to the court to terminate the PIA if:

  • The PIA is deemed unfair or unreasonable
  • There were procedural errors in establishing the PIA
  • You fail to comply with the PIA’s terms

Advantages of a Personal Insolvency Agreement

A personal insolvency agreement has multiple benefits for both the debtor and the creditors:

  • Avoids bankruptcy
  • Protects assets
  • Increases debtor control over finances
  • Potentially higher returns for creditors
  • Creditors participate in negotiations
  • Debtor may keep their home
  • Creditors in the PIA cease debt collection
  • Debtor maintains a reasonable living standard
  • Successful completion discharges remaining unsecured debts

Disadvantages of a Personal Insolvency Agreement

Despite having many advantages, PIAs also present potential challenges:

  • Impacts credit rating and future credit access
  • Restricts borrowing during the PIA
  • Appointing a trustee is an act of bankruptcy, leaving the debtor vulnerable if the PIA fails
  • Failed PIA can trigger creditor-initiated bankruptcy proceedings
  • Your details and PIA will be permanently listed on the National Personal Insolvency Index (NPII), which is a publicly available insolvency record.

Alternatives to a PIA

Ending a PIA

A personal insolvency agreement might not be the best solution for every person’s situation. Alternatives include:

Debt Agreement

This is a legally binding agreement under Part IX of the Bankruptcy Act. It allows people with lower income and debt levels to reach an agreement with creditors to pay back debts over time, often at a reduced amount.


This is a legal process where a trustee is appointed to manage your financial affairs because you are unable to pay your debts. Bankruptcy typically lasts for 3 years and 1 day, but it can have long-term impacts on your credit rating and employment opportunities.

Informal Arrangements

These are negotiations directly with creditors to arrange more manageable repayment terms, such as reduced payments or temporary pauses in repayment. These arrangements are not legally binding and do not provide the legal protections of formal insolvency options.

Debt Consolidation

Debt consolidation combines multiple debts into a single loan with a potentially lower interest rate and simpler repayment terms. This can make debts easier to manage, but it may extend the repayment period and increase the total interest paid.

Financial Counselling

Seeking advice from a financial counsellor can help you explore all available options, including budgeting and managing debt, without formally entering into a personal insolvency arrangement.

When Should You Consult with a Lawyer for a PIA?

Before Initiating a PIA

A lawyer will help you to fully understand your legal rights, responsibilities, and the implications of entering into a PIA. Your solicitor can provide detailed information about the process and help you assess whether it's the best option for your unique financial situation.

During the Preparation of the PIA Proposal

An experienced lawyer can assist in drafting your proposal to ensure it meets legal requirements and adequately represents your interests. They can also help negotiate terms that are favourable yet fair and acceptable to your creditors.

If your financial situation involves complex legal issues, such as disputes over debts, claims by creditors, or other legal matters, professional legal advice will be incredibly valuable.

Review of Agreement Terms

Before finalising any agreements, have a lawyer review the terms. This ensures that you are not mistakenly agreeing to unfavourable conditions and that all legalities are appropriately addressed.

Post-Agreement Issues

If issues arise after the agreement is in place, such as accusations of non-compliance from creditors or disputes about the terms of the agreement, a lawyer can represent you and advise you on how to resolve these issues.

Don't face your legal challenges alone. Let's discuss your legal concerns confidentially. Book a free consultation today.

Personal Insolvency Agreement FAQs

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Phone: 073 518 8030

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Visit us at: Level 38, 71 Eagle Street, Brisbane QLD 4000


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