The Law Handbook 2024

386 Section 5: Managing your money A personal insolvency agreement starts with a proposal by a debtor who is insolvent. The proposal must contain the information relevant to creditors (e.g. details of the debtor’s income and assets). The proposal may include information about: • any lump sum payment to creditors from the debtor or from third parties; and • any transfer of assets to creditors or the payment of sale proceeds to creditors. The personal insolvency agreement proposal must set out the order in which the debtor’s income and/ or property is to be distributed among creditors, whether any assets have been disposed of to third parties before the agreement and whether they can be recovered, and how the agreement is to end. Personal insolvency agreements are usually organised by a controlling trustee (who may be a registered trustee or a solicitor). AFSA’s website (www.afsa.gov.au) has a list of all registered trustees in Victoria and their contact details. Advantages of personal insolvency agreements Some of the benefits of personal insolvency agreements are: • the debtor is given a chance to trade out of their difficulties, they can continue to operate a business if allowed by the personal solvency agreement and they are released from their obligations at the end of the agreement; • the administration of a personal solvency agreement may be cheaper and more flexible for both creditor and debtor than the alternatives; • debtors may avoid the stigma, restrictions and liabilities of bankruptcy; • the antecedent transaction provisions in ss 120– 122 of the Bankruptcy Act may not apply (s 188A(2)(j)); • creditors do not have access to after-acquired property; and • the debtor is not liable to make income contributions under Part VI Division 4B of the Bankruptcy Act. Disadvantages of personal insolvency agreements Some of the disadvantages of personal insolvency agreements are: • The personal insolvency agreement procedures are often irrelevant to low-income earners who do not have the financial resources to bargain for an agreement. • The debtor has to pay fees to a registered trustee for personal insolvency agreement procedures. The payment of the trustee’s fees is the first matter on the agenda at the meeting of creditors and they must agree to the payment of fees. • A personal insolvency agreement may give rise to acts of bankruptcy (s 40(1)(i)–40(1) (m) Bankruptcy Act) so a creditor could start bankruptcy proceedings. • The debtor’s details are recorded on the debtor’s credit file and on the National Personal Insolvency Index. • A debtor with a personal insolvency agreement is restricted from working in certain industries. • A debtor with a personal insolvency agreement is disqualified from managing a corporation until the terms of the agreement are complied with. Summary comparison of insolvency options under the Bankruptcy Act The AFSA website has detailed information comparing the insolvency options available under the Bankruptcy Act. It also offers a tool debtors can use to help identify the formal insolvency option that suits their circumstances. Go to www.afsa.gov.au/i-cant-pay-my-debts/ compare-your-insolvency-options .