Formal administrations available to insolvent individuals are not limited to Bankruptcy (Part IV) or Debt Agreement (Part IX). The other form of administration is referred to as a Personal Insolvency Agreement (Part X).

A PIA has no restrictions as to thresholds on either the amount of debt, income or assets of the individual.

However, in order to propose a PIA the debtor must, in the first instance, engage a Controlling Trustee. The Controlling Trustee upon consenting to act in that capacity will take into trust the estate of the debtor – all assets and hold those assets until there is an outcome from a creditors meeting which is a legal requirement.

At the creditors meeting, creditors will vote as to the proposal for settlement that has been placed before them. The form of the proposal will be developed by the Controlling Trustee in conjunction with the debtor. Creditors may also resolve at the meeting that:

• The proposal be accepted; or
• The proposal be changed; or
• The debtor present a Debtor’s Petition in Bankruptcy; or
• The debtor’s property be released back to the debtor from the control of the trustee.

Before contemplating this form of administration the debtor should consider the costs involved in engaging a Controlling Trustee. Many will seek an up-front fee of a substantial amount. The trustee may sell some assets of the debtor to meet those fees, including the family home.

Generally, a PIA is only practical and affordable for business debtors who wish to compromise creditors and still remain in business – although available credit may dry up from suppliers affected by the compromise agreement.

Some trustees will permit an instalment payment system to be implemented in much the same manner as a Part IX however this should be discussed with the controlling trustee prior to their being appointed.

• Unsecured creditors are proscribed from taking any further step in the collection of a debt, and rely on the Administrator to collect monies, make disbursements to them and keep them fully informed as to the progress of the ‘account’.
• Unsecured creditors are required to cease further accruing interest and the Administrator deals with each debt on the basis of the balance owing, as claimed by the creditor by statutory Voting Form.
  • All unsecured debts are frozen at the commencement of the statutory process;
  • Wage garnishee must be withdrawn;
  • Civil Court actions relevant to civil debts go into limbo and executions are stifled;
  • All unsecured creditors are dealt with equally, not favouring any particular creditor;
• Over 50% in value (Ordinary Resolution) of those who vote on a proposal, is sufficient to create a binding agreement or to reject the proposal; a further proposal can be presented to creditors if warranted by change in circumstance.
• The obligations imposed by the Debt Agreement are generally expunged by instalment payment over time but there is no obstacle to settling a debt agreement earlier if your financial circumstances change for the better;
• If your circumstances change for the worse during the term of an agreement , an application to vary the agreement may be proposed to creditors to accommodate those circumstances.
• The purpose of a Part IX Debt Agreement is to settle indebtedness by compromise, avoid the consequences of bankruptcy and permit the debtor to keep all assets where they can afford to be kept.
• Each person in a household can lodge an individual debt agreement. If there is substantial Joint Debt, partners may elect a ‘Conditional Proposal’ which indicates to creditors that if one proposal fails then the other will automatically be withdrawn. Vice Versa, if creditors accepts one then they are required to accept the other.
• Provided you meet the obligations imposed by the Debt Agreement you are free to go about your business and get on with your life without interruption or harassment from creditors.
• Completion of the obligations will be noted on both your credit reference file and the National Personal Insolvency Index.

Disadvantages of a Part IX Debt Agreement

• Secured debt cannot be included. Accordingly if payments are not maintained repossession of the security is permitted. Note: Any deficiency between the value of the security and the account balance is included. Payments toward secured debt is allowed for in the Budget of the debtor to ensure compliance with payment arrangements.
• Non-dischargable debt cannot be included and where its exists must be included in the Budget of the debtor (Maintenance or Child Support; fines and penalties due to the crown, HECS).
• Proposing a Part IX Debt Agreement is subject to the Bankruptcy Act 1966 (as amended). Therefore, a debtor seeking relief under this Part of the statute must realise:
  • Proposing a Part IX Debt Agreement is an ‘act of bankruptcy’.
  • It’s an ‘act of bankruptcy’ because you are formally declaring that you are insolvent and unable to meet your financial obligations as they fall due;
  • It is not ‘bankruptcy’, your assets and financial matters will not fall under the jurisdiction of a Bankruptcy Trustee;
  • Upon receipt of a proposal for processing by the Official Receiver and its acceptance for processing your personal details will be annotated on the National Personal Insolvency Index. Those details will remain forever, but will be annotated as ‘completed’ when completion occurs.
  • Your credit reference file will be annotated that you have committed an ‘act of bankruptcy’ and it will remain on your file for a period of seven (7) years. The file will be annotated ‘settled’ when all the obligations has been fulfilled;
• You will find it difficult to obtain credit during the term of the debt agreement and perhaps later until the annotation to the credit file is either annotated as ‘settled’ or the term of its publication expires; Note: SRMC Limited have assisted many clients obtain credit by issuing a letter to the lender stating that the agreement is up to date.
• If you fail to meet the obligations a creditor may terminate the agreement and as a consequence the debt will start accruing interest again.

1. An informal debt agreement.

A Common Law Debt Agreement, outside the Bankruptcy Act 1966, offering creditors settlement over time by an affordable regular payment. These agreements are usually made by persons who have:

• Been bankrupt in the past 10 years but have fallen into difficulties again;
• Had a previous formal debt agreement or personal insolvency agreement terminated;
• Executed a Section 188 under Part X of the Bankruptcy Act.
• Do not meet the thresholds pertaining to formal debt agreements;
• Debt levels do not warrant a formal debt agreement.

2. Hardship Application – Uniform Consumer Credit Code.

• Where insolvency is temporary and can be rectified by altering the agreement with the lender. Applicants should have a clear perception that their circumstances will change for the better.

3. Debt Agreement – Part IX Bankruptcy Act 1966 (as amended)

A formal agreement proposed by the debtor to all creditors offering a settlement, over time, and at a regular rate of payment that can be afforded.

Regulated by federal legislation and has the effect of binding both debtor and affected creditors to the obligations imposed by the agreement, if accepted by creditors.

Provided a debtor maintains payments as agreed the understandings remain in place however a creditor may terminate a debt agreement if payments are not maintained; or for any other reason. Creditors maintain broad rights to terminate agreements.

Usually results in the appointment of a federally registered Debt Agreement Administrator to monitor the obligations, receive contributions into trust from the debtor and disburse monies to affected creditors.

What are my choices?

If you have arrived at the conclusion that you are insolvent then you simply must do something as quickly as possible.

Do not ignore the warning signs – there is no point, because help can be obtained to sort out issues that may assist you to remain free of the state of bankruptcy:

If you are a Centrelink recipient or a pensioner overloaded with debt that cannot be serviced then bankruptcy may be your best option but much will depend on your capacity to pay. Age plays an important role in determining a course of action as does personal attitude toward honouring commitments. If it is impossible to honour your commitments and still live a decent existence then you should discard the honour and choose survival.

Bankruptcy isn’t the best solution – but they don’t shoot you!

Beneficiaries should make contact with a community based financial services counsellor who will assist with information, perhaps advice and help deal with the situation.

If you don’t know where to contact a community based counsellor simply ask Centrelink, St Vincent De Paul, Salvation Army or your local Legal Aid Office.

Do Not seek the services of a commercial debt advisor if you are a beneficiary – they will charge you for the service.

Otherwise:

• If you can catch up on arrears of payments contact all of your creditors and seek a Hardship Application under the Uniform Consumer Credit Code. This will allow you to make arrangements for payment in terms that will suit you, hopefully.
• If your position has reached a stage where debts are piling up, you cannot make suitable arrangements with your creditors and debt collectors are popping around or calling you –

Seek advice from a professional advisor
1300 661 671

• A trustee will be appointed to oversee the bankrupt’s financial affairs;
• An investigation will be implemented to check for improper transfer or disposition of property. An investigation can go back over the previous 5 years.
• Any Passport must be handed over to the Trustee;
• Income will be scrutinized by the Trustee and if earnings exceed certain thresholds then the Trustee will require contributions from the bankrupt to meet both the trustee’s expenses and payments to creditors.
• It is prohibited for a bankrupt to:
  • Be a director of a company;
  • Manage a business, other than in his or her own name;
  • Hold public office;
  • Hold an occupational licence (depending on rules & policies of the regulator);
  • Keep or maintain assets in excess of those stipulated in Bankruptcy Regulations;
  • Transact monetary instruments (cheques) over a certain limit without advising the recipient that the bankrupt is an undischarged bankrupt.
• A bankrupt will remain an undischarged bankrupt for a period of no less than three (3) years and in certain circumstances this period can be extended.
• A bankrupt’s credit file will be annotated for a period of not less than seven (7) years.
• It will be extremely difficult to obtain any form of credit;
• Bonds may be required to be paid to utility services in excess of what otherwise may be sought;
• A bankrupt’s job may be at stake and moreso if that job entails handling cash.
• If you are given or bequeathed property of any nature after the commencement of bankruptcy it will automatically vest in the trustee. This is known as after-acquired property.

Effects on family

• A severe lifestyle change is inevitable.
• Children and juniors may suffer from an inability to share outings with their friends and school;
• Children and juniors may have to change schools;
• Gifts, a usual part of family life, will diminish for lack of available funds;
• Spouse’s will suffer from an inability to maintain the household to the usual standard of meals, furnishings, entertainment, clothing etc.
• Neighbours and friends may become aware of the bankruptcy and adopt attitude changes toward spouse’s and children.

Effects on others

• Merchants accustomed to doing business with a bankrupt lose a client and attending income from those business dealings;
• Employees of the bankrupt will inevitably lose their job and will be placed in a position of unemployment by no fault of their own culminating in them not being able to pay their obligations;
• The bankrupt may be left in a position of having to rely upon social service payments from the federal government thereby becoming a recipient of benefits, perhaps on a long term basis.
• Creditors’ returns are either severely diminished or written off totally. This ultimately leads to tighter lending practices and higher interest rates.

In general, a stigma will attach borne from the perception in the community that bankruptcy is an act of dishonesty or at best financial failure due to mismanagement.

Nowhere in insolvency law, is there a mention of a bankrupt’s rights!

Everywhere in insolvency law there is reference to the rights and interests of creditors!

In concluding this part on bankruptcy issues it should be clearly and categorically stated that many bankruptcies are brought about by events totally beyond the control of the bankrupt.

Many bankruptcies are not the direct fault of the bankrupt and have occurred due to a cataclysmic event in their lives. Serious illness, unexpected loss of employment, bereavement; or relationship breakdown.

In fairness to these individuals they could hardly be tainted as dishonest or lacking in financial skills.

There is a purpose to bankruptcy. It is intended to teach those who enter this state to be more financially aware, learn by their mistakes; accept the consequences of their actions – with a view to returning the bankrupt to society a better informed and more reliable member of the community.

The tenet in insolvency law is basically “Don’t borrow what you cannot pay back.”

Information concerning bankruptcy and other administrations may be obtained from www.itsa.gov.au ]]> http://www.debtlifeline.com.au/effects-on-the-bankrupt.html/feed 0 http://www.debtlifeline.com.au/what-are-the-consequences-of-bankruptcy.html http://www.debtlifeline.com.au/what-are-the-consequences-of-bankruptcy.html#comments Tue, 05 Jan 2010 04:44:31 +0000 cliff http://www.debtlifeline.com.au/?p=168

Firstly, take the blinkers off.

Bankruptcy is not just about YOU. Bankruptcy is about the community at large and it effects everyone in or near your circle and far beyond it.

History

In Anglo-Saxon times persons who did not pay their debts were beheaded.

The Greeks took the whole family as slaves.

In medieval times bankrupts were thrown in prison and left to rot until either family or friends paid the debts in full.

Debtor’s prisons abounded in Europe until late in the 18^th century and were only abolished in Australia in 1836.

Bailiff’s took everything including the baby’s bath water!!

There are some expenses that are paid monthly for no other reason than that is the way the contract has been formulated. Some, such as electricity and rates arrive quarterly or half yearly.

That does not mean to say that you have to wait until you receive that account. Be wise.

It is unlikely that any creditor will refuse payments from you…. highly unlikely. It may even be prudent to make weekly instalments to all of your creditors to avoid lumpy cash flow issues at the end of each month. ]]> http://www.debtlifeline.com.au/tips-on-meeting-your-obligations-in-an-orderly-fashion.html/feed 0 http://www.debtlifeline.com.au/my-own-secrets.html http://www.debtlifeline.com.au/my-own-secrets.html#comments Tue, 05 Jan 2010 04:43:17 +0000 cliff http://www.debtlifeline.com.au/?p=164

I operate a business that generates considerable expense. Sure it’s a business, but running a household is a business too, even if your single. Here are some expenses that are generated and how they are dealt with:

Telephone: I know from experience more or less what my telephone account is going to be every month.

Every week I pay one quarter of that amount to Telstra either by internet transfer, mail or at the Post Office.

When I get the account each month – you know what? It’s normally in credit or the amount is so small that it just isn’t going to hurt.

Insurances: There are payment plans where arrangements can be made to pay weekly or fortnightly – it is also wise to undertake a regular analysis of your insurance protection.

Car payments: The finance company is paid weekly – not monthly. It’s just a matter of setting up a periodical payment with the bank. I pay a little bit more than I have to – maybe $5.00 but I never get letters and my credit is great.

Mortgage: Apply the same philosophy.

Utilities: The power company isn’t going to refuse money either. Pay a bit each week at the Post Office; or arrange a periodical payment direct from your bank account..

If you can apply this method to your payments and do it every pay day whether its weekly, fortnightly or monthly you will find that what you have left over in your hand, is yours to do with as you want.

It’s simple easy budgeting that works. But it will work only if you stick to it.

Direct debit. It is not recommended that you enter any arrangement where a direct debit from your bank account will be made. You are giving an authority for monies to be ‘taken’ rather than allotted and, at times, it can be frustrating trying to cancel a direct debit – which you are entitled to do at any time by delivering a letter of cancellation to your bank.

Apply for a Debit Card

Everyone is accustomed to having credit cards available to use on a whim. The interest rates are more or less in 18% range. Ultimately you have to pay them – or lose them.

Consider getting a Debit Card and in this way you are using your own money. You will still have access for Mastercard and Visa payment options.

A Debit Card will allow you to pay all the weekly expenses either at an ATM for cash, fuel and internet transfers.

On the following page you will find an Assessment page that will assist you in ascertaining your financial position.

Pointers:

• Increase by say 5% what you are currently paying for rent, groceries, fuel.
• Do a parallel exercise to check if you can reduce household living expenses – but then you will have to stick to it.
• Check if you are paying monies out on items or services you would like to keep but don’t need.
• Remember the children and allow for school outings, school books and uniforms and entertainment;
• If you give to your church or foster an overseas child make sure the costs are included;
• Clothing wears out and needs to be replenished from time to time – allow for it.
• Hairdressing is a necessity for all individuals – make an allowance;
• If you indulge in tobacco and/or alcohol check if you can reduce the cost but remember to allow for the expense realistically;
• You must allow for vehicle registration, insurances and maintenance, if you own a car, motor bike or caravan;
• Likewise life assurance, private health insurance & income protection insurance etc;
• If you own property you must allow for property maintenance, insurances, rates and body corporate fees;

If necessary increase expenses that you would expect to rise in the next 6 months – do not decrease your known expenses simply to arrive at an answer you would like to arrive at.

Now, you need to search those drawers and cabinets and extract all of your accounts and credit card statements including any accounts that are overdue, including taxation.

Arrive at the household income first by obtaining:

1. Pay slips;
2. Benefit statements;
3. Receipts for board
4. Other income from investments, child support or maintenance

Do not include anticipated bonuses unless they are guaranteed to be received with regularity and certainty… ]]> http://www.debtlifeline.com.au/checking-your-financial-health.html/feed 0 http://www.debtlifeline.com.au/causes-of-insolvency.html http://www.debtlifeline.com.au/causes-of-insolvency.html#comments Tue, 05 Jan 2010 04:41:37 +0000 cliff http://www.debtlifeline.com.au/?p=158