In Australia, informal agreements, debt agreements, and personal insolvency agreements are all alternative options to bankruptcy for individuals facing financial difficulties. However, each one operates differently, and has different benefits.
Informal agreements are private arrangements between an individual and their creditors to repay debts. They are not legally binding, and there is no protection from creditors. A creditor can still make someone bankrupt if they are not happy about the outcome that is proposed. It allows for short term relief and is easily adaptable. It is also a cheaper alternative and ideal for smaller value debts.
Debt agreements are legally binding agreements between an individual and their creditors to repay their debts over an extended period of time. The debt agreement can only go up to three (3) years, unless a property is owned; then a debt agreement can be proposed for up to five (5) years. A debt agreement can only be proposed if unsecured and secured debts are below the relevant threshold, which is currently $128,528.40. Debt agreements are also subject to income and property thresholds, however they usually allow for a higher return to creditors due to the individual not being made bankrupt.
Personal insolvency agreements (“PIA”) are binding agreements between an individual and their creditors, similar to a debt agreement. It is also a formal legally binding process which requires the appointment of a Trustee. A PIA requires a report by the Trustee on the individuals’ affairs and a vote of creditors. PIAs can only be entered into if the majority of creditors agree to the terms. There are no debt, asset or income limits for PIAs and the length of the agreement can be negotiated with creditors.
In summary, informal agreements are not legally binding but the cheapest option, while debt agreements are legally binding while allowing a higher return to creditors and can be used as an alternative to bankruptcy, and PIAs are legally binding and a more formal process at a higher expense.
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