Are you feeling as though you are in over your head with financial debts? Thinking of going into insolvency or bankruptcy but do not know where to begin? It is important to understand that there are many different alternatives available aside from becoming insolvent.
Before we go into the details of the formal alternatives to insolvency under the Bankruptcy Act, there may be informal arrangements available to you. This involves entering any form of agreement with your creditors that will not amount to making you bankrupt. They are usually organised by a financial advisor, accountant or solicitor. Common deals that are formed include delaying the payment of the debt for a specific time, the debtor working for the creditor or paying a portion of the debt owed. Obviously, an informal agreement is less costly than a formal arrangement but there is a catch! Informal arrangements will only work so long as all your creditors cooperate and agree with it. This means that you will need to be sure that the creditors uniformly agree. If one creditor does not agree, they are not legally bound and can bring an action against you individually. Another requirement is that you will need to fulfil the agreement because if not, the creditors will repudiate the agreement and bring action against you.
Realistically, informal arrangements are only useful when you have a small handful of creditors and usually are agreed upon when family members offer to pay your debts.
Part IX – Debt Agreements
There are actually two formal schemes under the Bankruptcy Act that could aid you in avoiding bankruptcy. If you would like to know more about Part X – Personal Insolvency Agreements, please read “An Alternative to Bankruptcy: What are Part X Personal Insolvency Agreements”). From the outset, you could enter Part IX or Part X but you cannot enter into both.
A Debt Agreement is designed to be less costly for debtors who are bankrupt and whose assets and liabilities are relatively small. They are managed by the Official Receiver and are generally administered by the Official Trustee or registered trustee. Procedurally, you have to submit a proposal to the Official Receiver who is then obliged to notify and send it to all creditors. The creditors will then be asked whether they agree or reject the proposal. It is important to note that before the Official Receiver looks at the debt agreement, he or she should give you the prescribed information that explains what you are doing in terms of the effects and consequences of a debt agreement. You will have to sign and acknowledge that you have received and read the prescribed information. Your proposal must be accompanied by your Statement of Affairs, which details all your assets and liabilities so creditors have the opportunity to inspect and review it.
Am I Eligible for a Part IX Debt Agreement?
According to the National Insolvency Index, a person cannot propose a debt agreement if their unsecured debts exceeds a certain threshold that changes periodically (currently $107,307.20 March 2015). Further, a person cannot propose a debt agreement if their divisible property is more than the set threshold ($107,307.20 March 2015). Finally, a person cannot propose a debt agreement if his or her after-tax income for the year is more than a set threshold ($80,480.40 March 2015). If you fall into any of the above criteria, you will not be eligible to propose a debt agreement.
What goes into the proposal?
There is no definitive list of what should be in the proposal but it is suggested that it might contain:
- A proposal to pay less than the full amount owed;
- A moratorium of debts or sale of property;
- A transfer of property instead of money;
- Periodic payments; or
- An undertaking by you to take advice about financial affairs.
Acceptance of your proposal is simply by majority in value only of those voting.
Other required Documents
In addition to the Proposal and Statement of Affairs, you must also file an Explanatory Statement, which contains relevant information, and explains why you believe that the proposal should be accepted. No creditors’ meeting is held per se. Instead, creditors are posted the information and are given a form to fill out. The form highlights whether the creditor is in favour or against the acceptance of your proposal and is returned to the Official Receiver within the specified time.
Ending a Debt Agreement
Your Debt Agreement ends when all your obligations have been discharged, unless it has ended earlier. The Official Receiver will give the trustee a certificate stating that the agreement has ended and that you have fulfilled all your obligations and duties. However, even if the bankruptcy has been discharged, you are still liable to assist the trustee and make full and honest disclosure as to your financial situation.
It is strongly advised that you acquire the assistance of a solicitor and accountant to help you draft up this proposal. Your proposal should be made as soon as possible, while creditors are willing to listen. A document of this importance should demonstrate that creditors will get a better return over other alternatives. If you would like to discuss your situation with one of our specialist lawyers, please complete the form or give us a call. We will then assess your needs free of charge and provide a fixed-fee quote if relevant.