FAQ's: Part X (Personal Insolvency Agreement)

The following FAQs concerning Part X arrangements will assist you in understanding it as a debt solution alternative. These questions and the responses are based upon AFS' significant experience in providing solutions to people in debt.

Remember that there are alternatives to bankruptcy. So consider the FAQs then contact us at AFS to receive our free and confidential advice, and discuss the debt solution that best suits you.

What is a Part X agreement?

Click here to be taken directly to our information page that explains what a Part X arrangement is all about.

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Why is the alternative referred to as a Part X (personal insolvency agreement)?

This alternative is commonly referred to as a Part X agreement, or a Personal Insolvency Agreement, because it is given its authority under Part X of the Bankruptcy Act.  The Bankruptcy Act also refers to this arrangement as a Personal Insolvency Agreement.

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Why would my creditors want to accept my Part X proposal instead of making me become bankrupt?

The benefit to creditors is usually related to the fact that the likely return under the Part X proposal will exceed the likely return under a bankruptcy scenario, and the costs of a Court process that would be incurred in a bankruptcy scenario can be avoided.  The Part X process involves the creditors being provided the relevant information to make this assessment.  Some creditors also recognise that you are making a genuine effort to repay the maximum you can afford in the circumstances. 

A Part X agreement is also administered by a trustee meaning that creditors have increased confidence as to the control and the independence of the process and terms.  AFS can recommend to you the an appropriate trustee to use if a Part X agreement is the best debt solution for you.

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What benefits are there for me in proposing a Part X agreement to my creditors?

There are a number of benefits to you in pursuing a Part X agreement, the largest benefit being the opportunity to avoid bankruptcy, and many of the restrictions that go with bankruptcy, whilst also getting a fresh start.

Other benefits may include the ability of the debtor to initially select his or her controlling trustee, avoiding the Court process associated with bankruptcy, the opportunity to propose an immediate release from your debts and possibly the avoidance of the need to contribute future income for the benefit of creditors.

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What is the difference between a Debt Agreement and a Part X (personal insolvency agreement)?

Both a debt agreement and a Part X agreement provide you with flexibility to propose agreements with your creditors.  A debt agreement is applicable to people with lower levels of income, assets and unsecured liabilities which are reflected in its qualifying criteria.  However, a debt agreement also has the benefits of lower approval levels required to bind all of your creditors, and the costs applicable to a debt agreement  will usually be lower than a Part X agreement.  So where possible a debt agreement is usually preferred.

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Are there any qualifying criteria to be able to propose a Part X agreement?

Yes.  To be able to propose a Part X agreement with your creditors you must have a connection with Australia (e.g. a resident), you must be unable to pay your debts as and when they fall due and you must not have appointed a controlling trustee in the previous 6 months.

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What is involved in proposing a Part X agreement?

In order to propose a Part X agreement you must have an appropriate level of income and assets or access to sources of funds (e.g. from a family member) to form the basis of your repayment proposal to creditors.  If you are in a position to make a proposal, you must obtain the consent of a registered trustee, a solictor or ITSA to act as your controlling trustee.

AFS can recommend to you an appropriate trustee to use if a Part X agreement is the best debt solution for you.

You will be required to complete the necessary prescribed forms that set out details of your assets, liabilities, income and other matters.  This information will support the basis of your proposal to creditors.  The controlling trustee will issue a report to your creditors together with that information and will convene a meeting of your creditors, within around a month of appointment, to consider and vote on the proposal.  The convening of that meeting will be advertised in the newspaper.  You will usually be required to attend this meeting.

During the proposal period your assets and property become subject to the control of the controlling trustee.

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Can my creditors keep pressuring me for payment during a Part X agreement?

During the period of a Part X agreement, including whilst the proposal is being considered by creditors, the creditors should deal directly with the controlling trustee. 

All amounts owing to creditors as at the date that the controlling trustee was appointed to act will be frozen and no creditor proceedings or actions (against you or your assets) are permitted to be advanced during this period.

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Do all of my creditors have to approve the Part X proposal?

To be binding on all creditors, the proposal must be approved and accepted by 75% of creditors in value of existing debts, and 50% in number of debts, of those attending the proposal meeting (referred to as a special resolution).

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What happens after creditors approve my Part X proposal?

Once your Part X proposal has been accepted by creditors the terms of the proposal will be documented into a Deed, which forms the arrangement, and it must be signed by you and the trustee within 21 days from the date that the creditors' approval was obtained.  Creditors will be bound by the terms of the Part X agreement.  You will then be required to carry out your obligations as proposed.

The controlling trustee will cease to act and the control will pass to the trustee appointed to administer the agreement.  This trustee may be the same person as the controlling trustee, or the creditors may elect a different trustee of their choice.

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What happens if creditors reject my Part X proposal?

The appointment of a controlling trustee under Part X of the Bankruptcy Act, and the convening of a meeting of your creditors to consider your proposal, are both what is referred to as ‘acts of bankruptcy', meaning that if your proposal is rejected by creditors at the meeting they can then require you to present your own petition for bankruptcy.

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Who would act as my trustee under the agreement?

The controlling trustee or the trustee under the agreement (once approved) is usually a registered trustee under the Bankruptcy Act or ITSA.  AFS can recommend to you an appropriate trustee to use if a Part X agreement is the best debt solution for you.

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Are all of my debts captured by the Part X agreement?

The Part X agreement will only release you from debts that the agreement specifies, and only to the extent that you would have been released from those debts had you become bankrupt.  See our bankruptcy FAQ page in this regard.

A Part X agreement does not affect your secured creditors' rights to the extent that they have not sought to include their claim under the agreement. 

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Will I be able to continue to manage a corporation or act as a director whilst subject to Part X?

Upon the appointment of the controlling trustee you will no longer be permitted to be involved in managing a corporation, including acting as a director, until the Part X agreementt is completed.

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Will my credit rating be affected?

Initiating a Part X agreement will damage your credit rating, and there will be a permanent record maintained.  This is likely to affect your ability to obtain credit and loans in the future.

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What should I do now?

Taking action is the key to regaining control and releasing the pressure.  Contact us now at AFS and we will help you on the path to financial freedom.

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