Informal agreements with creditors can sometimes be an inexpensive way to deal with uncontrollable debt. However, if not all creditors approve the proposal, there is no reason why a creditor cannot go bankrupt. Under these conditions, it may be possible to enter into a formal agreement that binds all creditors, but does not imply that the individual goes bankrupt. While PIAs will not be appropriate in all cases of private insolvency, the author believes that there are many cases where it would be in the interests of creditors and debtors to consider an IAP. Legal and financial advisors play an important role in consulting their clients and in exploiting the potential benefits that an PIA, after the debtor`s agreement, saves by a particular decision of creditors at a meeting convened for that purpose or by the agent who drafts the creditors. As a general rule, an AIP does not affect the rights of a secured creditor or exempts a partner or co-debtor or a surety from a guarantee given to the debtor. As a general rule, a lump sum payment of third parties or a series of payments over time and/or the exclusion of related parties when receiving a distribution can achieve this. One of the advantages of such an agreement is to avoid the restrictions imposed by bankruptcy. An IAP is essentially an act involving creditors in the management of the assets/liabilities of an insolvent debtor. A private insolvency contract is an alternative to bankruptcy. It is a formal agreement between debtors and creditors that explains how unpaid debts are met. Part X of the 1966 Bankruptcy Act („the law“) offers an alternative to bankruptcy by providing a debtor in financial difficulty with a formal but costly mechanism to secure a binding agreement with his creditors.
The rules are individually adapted to the debtor`s particular financial situation. The debtor is able to negotiate with creditors a transaction that is likely to pay less than 100 cents in dollars. Payments can be lump sum and/or staggered over a specified period of time and may include the sale of real estate as well as the contribution of regular payments.