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Alternatives to bankruptcy

Notice of Intention to Declare a Debtor's Petition

Subject to certain exceptions a debtor may present to the Official Receiver a declaration to present a debtor's petition [Bankruptcy Act 1966 s 54A]. Once accepted this has the effect of freezing action against the debtor by a creditor for a period of 21 days. This allows a debtor time to seek advice or make arrangements with creditors and prevent the need to become bankrupt. These arrangements have no effect on the rights of secured creditors to deal with their security. A declaration is not available to business partners and can only be filed once in any twelve month period.

Informal Agreements

It is possible to negotiate arrangements with creditors to repay certain debts over a period of time. Dealing with debt in this way requires some skill, and it is best to consult a financial counsellor, or lawyer or accountant to put a realistic and manageable proposal to persuade creditors to accept something like a reduced lump sum or a long term instalment arrangement. Creditors may ask to be informed of your complete financial position, including other creditors, to ensure that any proposal is fair. Clearly entering into such an arrangement avoids the stigma and consequences of bankruptcy, although it is likely that creditors may make an adverse credit report which will remain on your credit file for a period of 5 years.

The Bankruptcy Act offers other alternatives that are legally binding, but do not have some of the same effects as bankruptcy.

Debt agreements - see Debt Agreements

Personal Insolvency Agreements

A Personal Insolvency Agreement is similar to a Debt Agreement, except that there are no limits on income and assets owned by the debtor, and no limits on the total debt owed. The PIA is managed by a controlling trustee, and involves investigation of a debtor's financial position by the trustee, who then calls a creditors meeting to allow the creditors to vote on any proposal. If the proposal is rejected, any creditor is free to make the debtor bankrupt (through a creditors petition) or let the debtor lodge their own petition.

This alternative is more suitable for people with unmanageable debts, but a high income and a number of assets.

The effect of a PIA is similar to a debt agreement:

  • It is an act of bankruptcy which allows a person to apply to a Court for a sequestration order if the PIA fails;
  • It is recorded on a person's credit report and on the NPII
  • Requires co-operation with the controlling trustee

Further detailed information about PIAs can be found on the AFSA website.

Alternatives to bankruptcy  :  Last Revised: Wed Jun 26th 2019
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